The announcement follows last month's EAT ruling that compulsory overtime should be factored into holiday pay calculations, which threw the door open to backdated claims that could potentially stretch back to the introduction of the Working Time Regulations in 1998.

Business groups including the British Chambers of Commerce and Confederation of British Industry slammed the ruling at the time, claiming that it could lead to "significant financial losses" for businesses and "force them to close their doors altogether".

CBI director general John Cridland called for the judgement to be challenged and, speaking at the time, said: "This is a real blow to UK businesses now facing the prospect of punitive costs potentially running into billions of pounds."

The government's response has been to propose changes to the Employment Rights Act 1996 that would limit EAT claims for backdated pay to two years. The government has proposed a six-month transition period, meaning workers will still be able to file claims under the existing arrangements until 1 July 2015.

The Department for Business, Innovation and Skills said the aim of the intervention was to "reduce the burden on employers of current regulation" and "to provide certainty for employers and employees".