The Single Biggest Issue Affecting Business

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Almost every business operating in the UK could be facing multiple claims for back-pay based on miscalculated holiday allowance, following a recent EU directive on employee entitlements. Is your business prepared for a potential flurry of claims? At a recent EP forum, we invited a group of professional hospitality operators and business owners to ask the experts the important questions.

 

1As of November 4th this year, following a ruling by the Employment Appeal Tribunal that employees can make claims for back-pay of holiday allowance, many if not all businesses in the UK are facing costs which could run into the billions.

Handed down following the Lock V British Gas tribunal, the ruling dictates that holiday pay for salaried workers who earn a regular commission must also include a corresponding sum in holiday pay packets to reflect the average of said commission.

What ramifications could this have for the hospitality sector where so many employees from waiters to sales managers and operations directors to chefs regularly earn commission, tips, bonus and gratuity? Beyond the obvious financial cost to business, there are a number of other operational and ethical issues to consider.

At a legal briefing hosted in partnership with JW LLP, questions were raised about how hospitality businesses could be affected by the ruling, and what the best course of action could be for operators in the sector.

 

DEALING WITH THE ISSUE BEFORE IT BECOMES A PROBLEM
The John Lewis Partnership has acknowledged inadvertently underpaying workers. Facing up to the issue, the business has negotiated a compensation arrangement to pay some 69,000 employees an average of £580 per person, in a £40 million deal to prevent against any further

 

2Traditionally, holiday pay has been calculated on basic salary only excluding any consideration of commission, benefits, overtime and bonus so it is somewhat inevitable that this ruling will impact considerably on British businesses. What then will this mean for the hospitality sector?

Stating, somewhat obviously, that this new legislation is set to impact directly on the bottom line, the CBI has commented that the decision is “the single biggest issue for businesses”, calling for the Government to vigorously defend existing UK law. Reacting accordingly, Business Secretary Vince Cable was quick to announce the formation of a taskforce to assess the implications of the ruling saying “we will review the judgement in detail as a matter of urgency to properly understand the financial exposure employers face” adding that the group will “convene shortly to discuss the judgement”

 

 

3While a number of industry bodies & groups including the British Chamber of Commerce, the IoD and the Federation of Small Business have criticised the ruling, it is nonetheless imperative that business owners and operators act swiftly to protect themselves and their employees. Throughout the course of the forum, Adam Ohringer, Barrister at Cloisters Chambers and forum Chair, made a number of interesting observations on the issue. Including help and advice specifically geared for businesses in the hospitality sector, and outlining guidance for operators on how best to avoid the pitfalls – of which there are many.

What can you do now to protect your business?

1. Update your software. As much as is possible, make sure your business is allocating holiday pay and allowance correctly from today – make those changes now. Contact any payroll software providers for clarity on how up-to-date their systems & processes are and demand a review if necessary.

2. Prepare for a wave of claims. They may not come, however it’s imperative to “hope for the best but plan for the worst”. Contact your legal team or advisor and ask for further clarity on the law and how your businesses could be affected. Now is the time to analyse how many employees may come forward so it’s imperative to know what they could be legally entitled to

3. Run a due diligence plan to comprehensively analyse the position your business is in today, right now. It’s best to know the facts and act accordingly from this position.

4. Have a frank conversation with your employees, especially senior and long-term workers. Try to alleviate any concerns that staff may have, and open an honest dialogue with to see if there is scope for a compromise, similar perhaps to the route taken by John Lewis plc

 

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“UK employers are going to experience significant repercussions thanks to this ruling, especially operators in the hospitality sector. Those who have or are paying holiday allowance based on basic pay and nothing else are short-changing employees, and will almost certainly be made to pay for this”

Some of the problems with addressing this new legislation is that employees are entitled to 5.6 weeks statutory holiday in the UK while the EU directive only applies to the first 4 weeks of holiday allowed under European law. Acknowledging this discrepancy as “another challenge in working out the figures correctly”, Adam also continued to cast light on how holiday allowance differs to maternity & paternity leave, sick leave, compassionate absences allowance and any other time out of the work environment.

Also included in the ruling by the Employment Appeal Tribunal is a note that voluntary overtime and “stand-by” time for emergency or last-minute call outs is to be included when calculating holiday time allowance. When considering that somewhere in the region of 5 million workers in the UK, or 1/6 of the entire workforce, do overtime, it is easy to see how hospitality businesses are going to be significantly affected by this legislation.

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JW LLP is one of the leading law firms in the UK, specialising in helping hospitality businesses. In partnership with EP, we host a series of legal briefings throughout the year which focus on a single issue at a time affording guests the opportunity to learn more about a topic and ask questions of the experts.

To know more about these forums and any other initiatives and events hosted by EP and partners, please contact Arlene McCaffrey directly.

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