The Federation of Small Businesses has warned that the landmark ruling, which allows millions of workers to claim overtime as additional holiday pay, could force SMEs to shut down over potentially massive costs.

The FSB chief added that there are still many unanswered questions over the Employment Appeal Tribunal (EAT) judgement, which relates to appeals in Bear Scotland v Fulton and Baxter, Hertel (UK) Ltd v Wood and others and Amec Group Ltd v Law and others.

"Today's ruling leaves many questions unanswered. It has the potential to be very damaging to small businesses, presenting a real risk of small firms being forced to close down if faced by retrospective claims," said John Allan, FSB National Chairman in a statement.

"Clearly it would be desperately unjust to expect businesses to pay retrospective compensation for how they calculated holiday pay when they were fully compliant with the law as it was understood at the time.

"The FSB has been appointed to a Government taskforce to examine this issue and will be fighting hard for small businesses to be insulated from the uncertainty and legal risks this ruling brings."

According to government figures, more than 30 million people in the UK get overtime.

The decision means that around five million workers could be entitled to additional holiday pay.

Meanwhile a recent survey of the FSB's 200,000 members found that a third of small businesses with employees paid staff for voluntary overtime while one in 10 of small firms with staff also offered some form of commission.

However, the EAT judgement may not be implemented immediately as it can be appealed at the Court of Appeal, meaning the tribunal may not have the "last word" on the issue.