The UK's Working Time Regulations allow employers to equate holiday pay to basic salary only but European Court rulings suggest entitlement should be based on 'normal remuneration', including at least some supplemental payments.
A change to the way holiday pay is worked out could have huge financial implications for businesses. Not only would staffing costs rise, but employers could face claims for previously underpaid periods of annual leave.
The position is unlikely to be resolved quickly, as the relevant cases could be appealed to the higher courts and might even be referred to Europe. Meanwhile, publicity about the issue is increasing and no win, no fee firms are showing interest.
While some employers have already been negotiating about settling holiday pay claims, most are adopting a 'wait and see' approach. Businesses would be well advised at least to undertake an audit of their current arrangements to establish any potential financial exposure.
Michael Burd and James Davies, Lewis Silkin LLP solicitors, email: firstname.lastname@example.org