ASK THE ACCOUNTANT – a weekly guide to the world of business finance with Warings Accountants

Q. How will the new holiday pay rules affect me and my business?

A. The Employment Appeal Tribunal (EAT) recently ruled in favour of including overtime in holiday pay calculations, instead of only factoring in basic pay as employers currently do.

They also ruled that workers can make backdated claims if it has been less than three months since their last holiday. A survey among manufacturers found that 93% said payroll costs would increase as a result of the ruling.

In response to the ruling, the Business Secretary, Vince Cable, set up a taskforce to investigate the potential costs to businesses “as a matter of urgency.” The business community has criticised the ruling, arguing that it will result in job losses, slow growth and even force businesses to close.

Adam Marshall at the British Chambers of Commerce said: “This ruling is damaging for businesses across the UK. Firms could be at risk of incurring significant financial losses, which could force them to close their doors altogether.”

There is some debate as to how many workers will be affected. Technically, the only people who are affected are those who are required under the terms of their contract to do overtime and not those who do “voluntary” overtime, although that may be tested in future tribunals.

The key here is know exactly how to calculate holiday pay entitlement for people whose hours and pay vary. All workers are entitled to a week’s pay for every week of their legal leave entitlement. But it can be difficult to work out what a week’s pay is for part-time and shift workers.

Plainly, seeking expert advice is the best way forward.

* For more help with finances go to www.warings.co.uk or call 01204 534031 or email PAL@Warings.co.uk