There has been a lot of press coverage about the recent court case where it was held that overtime should be included in calculating holiday pay. I do wonder if it will have a negative effect on the amount which employees will earn in future.

Thinking about how business owners should react to what is, currently at least, slightly unclear territory, I was reminded of previous issues where legislative efforts intended to have one effect which appeared to backfire spectacularly.

The one that I quote most often, and it dates back a long way, relates to my time as a student in London in the late sixties and early seventies, when getting accommodation was made 10 times more difficult by legislation which was intended to benefit tenants.  At that time the name Rachman brought to mind evil landlords who kept their tenants in poverty by ensuring that they paid a fortune for substandard accommodation, yet would also evict them at a whim.  The truth of the matter was that the balance of power was with the landlord, but to be fair the number of really bad landlords was probably quite small.

Legislation was therefore brought in which gave tenants substantially improved rights – a laudable aim which unfortunately swung the pendulum too far the other way, as a result of which  a large proportion of the available property was taken off the market! My objective measurement of the reduction in supply was the number of pages in the Evening Standard at the time dedicated to properties for let; it decreased by a factor of about five, virtually overnight.

Not, I suspect, what the legislators intended!

As far as holiday pay is concerned, managers of businesses where staff work overtime are in something of a quandary.  Do they take the prudent view and provide in the accounts for the potential liability? If so, how many years? Are they inviting claims if they do provide? What about employees who have left? Would a provision be tax deductible? Etc.

At the moment, none of this is clear – and it would appear that it will be quite some time before we get any clarity as there is a Government Taskforce involved.

What I suspect will happen, however, is that employers will fundamentally change the way in which they run their business so as to avoid, or at least reduce, overtime.

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