By Jonathan Davies

Overtime should count towards holiday pay the Employment Appeal Tribunal (EAT) has ruled, in a move which could cost businesses billions of pounds.

At the moment, only basic pay counts towards holiday pay. But today's groundbreaking case will see workers who work voluntary overtime able to claim for added holiday pay.

Workers will be able to backdate claims for a three-month period.

The decision is likely to be appealed at the Court of Appeal. That would mean a final decision on the matter may be years away.

The Business Secretary Vince Cable has set up a government taskforce to assess the possible impact of the ruling.

He said:

"Government will review the judgement in detail as a matter of urgency. To properly understand the financial exposure employers face, we have set up a taskforce of representatives from government and business to discuss how we can limit the impact on business. The group will convene shortly to discuss the judgement.

"Employers and workers can also contact the Acas helpline for free and confidential advice."

The Federation of Small Businesses (FSB) today (Tuesday) warned that the ruling could have a significant effect on around five million small businesses.

The government estimates that one sixth of the country's 30.8 million working population get paid overtime.

"Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to," said Howard Beckett of Unite.

"This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order."

John Allan, FSB National Chairman said:

“Today’s ruling leaves many questions unanswered. It has the potential to be very damaging to small businesses, presenting a real risk of small firms being forced to close down if faced by retrospective claims.

“Clearly it would be desperately unjust to expect businesses to pay retrospective compensation for how they calculated holiday pay when they where fully compliant with the law as it was understood at the time."

John Cridland, CBI Director-General, said:
“This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds — and not all will survive, which could mean significant job losses.

“These cases are creating major uncertainty for businesses and impacting on investment and resourcing decisions.

“This judgment must be challenged. We need the UK Government to step up its defence of the current UK law, and use its powers to limit any retrospective liability that firms may face.”

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