The recent ruling that workers who receive regular overtime payments as part of their normal pay must receive holiday pay based on their total earnings will affect small businesses significantly. Fortunately, for the time being at least, the ruling has stated that employees cannot claim for backdated holiday pay more than three months after the last incorrect payment. However employees could try and appeal this.
Many businesses provide the opportunity for workers to work regular extra hours in order to enhance their take home pay but until now those workers only received holiday pay based on their regular contracted wage or salary. From now on your payroll administrator will have to take account of regular overtime worked and calculate an additional payment when the worker takes holiday.
If your workers work regular overtime you should consider the financial impact this could have on your business. You may feel that you are saving costs by not employing an additional worker but providing regular overtime not only impacts on holiday pay but may also impact on the employee's right to join your pension scheme when pension auto-enrolment for your business comes into force and your obligation to pay into that scheme.
Providing overtime to employees regularly can also have a significant impact when that employee is ill or on holiday. Who will cover the work they have been doing which may be more than full time hours?
Overtime should really be offered on an "as required" basis. It should not be expected by either the employer or the employee and should only occur with the approval of the employer and the agreement of the employee. Overtime is usually paid when there is a sudden increase in workload which may be seasonal or one off, or in a situation where an employee has left and other employees need to cover that role temporarily.
If you pay overtime consider how you use this option in your business. It is not always financially beneficial to offer it.