Millions of workers could claim back holiday pay amounting to billions of pounds under a ground-breaking legal ruling.
The ruling, made by the Employment Appeal Tribunal, says that overtime should be taken into account when holiday pay is calculated, paving the way for possible payouts worth thousands of pounds to workers.
The judgment also means workers could be able to make backdated claims.
However, the ruling could be subject to an appeal, which means any final decision could be some way off.
The Unite union welcomed the decision and said the ruling paved the way for possible payouts worth thousands of pounds to workers.
TUC general secretary Frances O'Grady said: "Failing to count overtime when calculating holiday pay is quite simply wrong. This ruling marks a victory for people who work long and hard to make a living, and who deserve to be properly paid when they take their well-earned leave.” she said.
"Scaremongering about the possible impact of this ruling is irresponsible. British business is far more robust than some of its spokespeople would admit.”
However, the ruling placed manufacturers and unions at loggerheads after business leaders labelled the decision “ludicrous” – a reaction union leaders branded “irresponsible.”
Adam Marshall, executive director of Policy and Public Affairs 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.”
He continued: “This expanded definition of 'pay' is so ludicrous that the Government itself has argued against it. No business should have to pay more than base salary during holiday periods, unless they elect to do so.”
Manufacturers' organisation EEF claimed firms will have little option but to factor the additional costs in to future pay negotiations and to reduce overtime, while one in four could cut jobs.
"What businesses fear most is that these judgments will open the door to backdated claims, which could run into the billions,” Mr Marshall claimed.
The EEF has urged the Government to protect businesses by limiting the timeframe for backdated claims to significantly less than six years and to prevent employers from facing tax and National Insurance penalties.
Unite said they consistently worked overtime, but that was not included in holiday pay, meaning they received "considerably less" pay when on holiday compared to when they were working.
Unite executive director for legal, membership and affiliated services, Howard Beckett said: "Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to. This ruling not only secures justice for our members who were short changed, but means employers have got to get their house in order.
"Employers will now have to include overtime in calculating holiday pay, and those that don't should be under no illusion that Unite will fight to ensure that our members receive their full entitlement.”
The ruling was made on two cases relating to the UK's interpretation of the Working Time Directive, including one involving electricians, scaffolders and semi-skilled operatives who worked on a project at the West Burton power station site in Nottinghamshire.
Additional reporting by PressReuse content