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Holiday pay: Another nail in the employment coffin

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Nevertheless, it represents a significant development in the ever-changing employment landscape. This is particularly true for firms in sectors such as manufacturing, engineering and logistics, which must respond quickly to spikes in demand by boosting their manpower.

Previously, such firms wouldn’t have hesitated to use overtime for permanent employees as a way to meet this demand. It’s highly likely, however, that the recent ruling will force them to think twice. 

With 93 per cent of manufacturers telling the EEF that their payroll costs will spiral following the judgement, it’s no surprise that most – if not all – will be seeking an alternative to overtime. 

Seeking alternatives

Simply enforcing an overtime moratorium would place a limit on capacity, resulting in demand going unmet and growth being impeded. Quite simply, an organisation that goes down this route would be unable to fulfil its potential.

Hiring more permanent employees would reduce operational agility and saddle companies with higher fixed costs, making effective staff capacity planning more difficult.

That’s why I believe the ruling will lead forward-thinking employers to make greater use of contingent workers such as contractors, freelancers and temps.

Tapping into Britain’s flexible workforce – the growing economic contribution of which was trumpeted recently during National Freelancers Day – offers a number of benefits, including:

Flexible access to fresh skills and resources

Utilising contingent workers gives an organisation access to skills, expertise and resources on a flexible basis. The size of your workforce can be scaled up or down as needs dictate.

Risk mitigation

Freedom from the legal risks associated with employment is an attractive proposition for any business owner or director, which explains the rise of outsourced employment specialists and umbrella companies. These providers employ contractors, freelancers and other contingent workers on behalf of end users. The umbrella company absorbs all of the legal risk, meaning the buck stops with it in the event of a tribunal claim.

Reduced costs and admin

The business of employing and paying people is becoming increasingly complex and expensive. Pensions auto-enrolment, PAYE real-time information, changes to holiday pay – the amount of red tape employers must contend with is growing inexorably. This partly explains why so many companies are choosing to scale up their contingent workforce rather than hire permanent employees. External workers may attract higher rates of pay, but switched-on organisations realise these individuals represent excellent value for money.

Rise of the ‘open workforce’

I believe history will see the recent holiday pay ruling as another nail in the coffin of the ‘traditional’ employment model, which was characterised by jobs for life and final salary pension schemes. The world of work is changing as organisations and individuals choose flexibility over certainty. 

This trend is highlighted in a fascinating new report by the Chartered Institute of Management Accountants, which predicts that the rise of the “open workforce” (where employers reshape their operations with a mix of internal and external workers) will accelerate over the next five years. More than a third of employers surveyed for the research expect at least 50 per cent their workforce to be made up of “external talent” such as contractors, freelancers and temps by 2020.

Embracing rather than resisting this trend could be the key to ensuring British businesses can compete and thrive in the global economy of the 21st century.

Andy Gunson is finance director at contingent workforce management specialist Parasol.

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