How holiday pay might affect your business – solvent or not.
5th September 2014
A recent ruling by the Court of Justice of the European Union (CJEU) has changed the way employers must now calculate holiday pay, with implications for both trading solvent businesses and insolvent businesses.
Lock v British Gas Trading Limited has confirmed that employers are required to include commission in calculating holiday pay for those workers who regularly receive it as part of their remuneration package.
Furthermore, a set of joined appeals currently being considered by the Employment Appeal Tribunal (EAT) are expected to determine that employers will also need to factor in additional payments including overtime [and other elements of pay like allowances] going forward.
There are obvious implications for trading companies and their funders in terms of cash flow and debt serviceability. Additionally, trading insolvencies (existing and/or proposed) will be affected in terms of the level and nature of claims, and the funding required to trade.
It is widely expected that the ruling will be such that employers will need to adjust future holiday pay calculations. There is also potential that employers may need to meet backdated claims for underpaid holiday pay.
What should you do?
We advise businesses to consider the potential implications, and, to the extent possible, undertake some contingency planning and advice. Here are some of the issues you might want to consider:
Trading Solvent Business / Funders of Trading Solvent Businesses should consider:
How is your workforce comprised and what is the existing basis of remuneration – i.e. do you already include elements such as commission and overtime in calculating holiday pay?
Is HR/your internal legal team aware of the position, and are there appropriate tools in place to enable holiday pay calculations to be amended to cater for changes in the legal position?
Is there sufficient headroom available in the existing budgets and forecasts to meet any existing holiday pay claims which include commission; and is there any ability to create a ‘buffer’ fund for potential additional claims for other remuneration elements e.g. overtime and/or for backdated claims?
What is the potential impact of the increased employment costs (if any) in terms of debt serviceability and/or ongoing funding requirements.
Insolvent Trading Business and insolvency practitioners or creditors in a trading insolvency should consider the relevant points above as well as:
How does this impact on the level of preferential claims?
What will be the effect on the trading costs and expenses? In particular, will there be sufficient funding available to meet increased holiday pay claims and potentially any historic holiday pay claims which relate to a period post appointment?
What is the impact on the estimated outcome statement / the level of recovery available to the creditors?
Will this impact on the intended strategy / options available in the context of the insolvency or in contemplation of the insolvency?
We anticipate that a decision of the EAT regarding overtime and other payments will be made towards the end of the year. We hope there will also be more clarity around how commission payments should be calculated and what the position is regarding how far back claims for underpaid holiday pay can go..
Once the position is clearer, HBJ Gateley will host a breakfast seminar with a view to advising you more fully on the practical implications for businesses.
If you would like any more information about holiday pay please contact Sarah Gilzean (Employment) or Allana Sweeney (Corporate Recovery) on 0131 228 2400 who will be happy to speak to you regarding any issues. We will return with any updates in due course.