A HOLIDAY pay time bomb caused by European Court of Justice rulings could be catastrophic for Yorkshire and Humber firms, a leading business organisation warned today.
Many local companies could be sent out of business by backdated claims for holiday pay unless the Government introduces emergency legislation to limit their potential liability, claimed the manufacturing organisation, the EEF.
It said the rulings, which potentially opened the door to mass claims for holiday pay dating back to 1998, were at odds with UK law, which employers had followed.
A spokesman said the EEF estimated that, on average, small and medium enterprises (SME) with a turnover of £30 million would be looking at a £2.5 million bill for holiday back-pay, as well as potential National Insurance and pension contributions, which could add an extra £250,000 to the bill.
"Over a four year period, SMEs could potentially face crippling costs of £4 million," he said. "Complying with the ruling from now on is likely to add an extra 4 per cent to a company payroll."
He said the rulings were all related to the UK’s interpretation of the Working Time Directive, which granted every worker four weeks paid leave, with UK law increasingly out of step with that of Europe.
"While most other European countries have been compliant with the new requirements, the UK failed to keep pace. As a result, many businesses are now exposed to huge costs.
"Without urgent legislation, UK companies are now facing claims dating back over the 16 year period for cumulative lost earnings."
Andy Tuscher, EEF Yorkshire and Hunberside regional director, said: “This is potentially catastrophic for local companies who have been fully compliant with UK law, yet now find themselves in a position which they could not have foreseen.
“This is a ticking timebomb and poses a serious threat to economic recovery as funds earmarked for critical investment are diverted to pay compensation instead. There is a real fear that this will see some businesses going bust.
“We urgently need the Government to recognise the danger and to bring forward legislation limiting the backdated liability companies face through no fault of their own.”