Employers could be liable for billions of pounds of backdated holiday pay after the result of an Employment Appeal Tribunal today.

The case of Bear Scotland versus Fulton involves three employees who claim that voluntary overtime pay should have been factored into their holiday pay. Currently, only basic pay counts when calculating holiday pay.

The case, which will be ruled on along with two other cases, could mean that five million workers could be entitled to more holiday pay in 400,000 businesses.

"The holiday pay time bomb could have a hugely detrimental impact on businesses up and down the country," said Simon Walker, director general of the Institute of Directors.

"It is not an exaggeration to say that some small businesses could end up being wiped out if employers who have acted compliantly and in good faith face underpayment claims backdated as far as 1998."