A civil engineering contractor has warned it may face a “struggle to survive”, following a European ruling challenging the normal calculation of holiday pay under the Working Time Regulations.
Holiday pay in the UK is currently calculated on the basis of a “week’s pay” – based on basic salary and excluding payments such as working allowances, expenses, overtime, commission and bonus payments, all of which refer to specific work done by someone while performing their duties.
But a recent European Court of Justice (ECJ) judgment redefined holiday pay to include an allowance for commission, despite the fact that commission is paid on sales made and the employee would not have delivered those sales while on holiday.
Northumberland-based contractor Owen Pugh Group has described the ruling as potentially “catastrophic”.
Chairman John Dickson said: “Changes to the method of calculating holiday pay in the future have cost and administration implications which are difficult but bearable. But if these changes are applied retrospectively, whether over six or 16 years, they are little short of catastrophic.
“Like many medium-sized, privately-owned businesses, we will struggle to survive. If it happens, all I can see for the next few years is a collapse in investment, spiralling job losses and a huge rise in insolvencies.”
The Confederation of British Industry (CBI) is now fighting Owen Pugh’s cause.
Katja Hall, CBI Deputy Director-General, said: “Backdated claims on holiday pay could lead to bills of millions of pounds for each business, and ultimately threaten their very existence.
“Businesses that have done the right thing and fully complied with UK law suddenly face the threat of substantial additional costs. And the companies most at risk are in vital sectors for our economy, such as manufacturing, construction and civil engineering.
The ECJ’s ruling in the Lock v British Gas Trading Limited case means that, depending on the subsequent ruling from the UK court, employers may have to change the way they calculate holiday pay to take account of commission payments and could face retrospective claims relating to earlier periods of annual leave, with the potential of going back six years or possibly even as far back as 1998.
UK businesses are currently facing an anxious wait to see how the UK courts interpret the ECJ decision on commission, and on the outcome of related tribunals on how holiday pay should be calculated to account for overtime.