Loyal staff who spend years working for the same company could lose their entitlement to extra paid holidays.

The perk handed out by around half of British businesses could be lost because of forthcoming age discrimination laws.

Employers' groups are telling their members to change the way they reward staff before the legislation comes in next year. Otherwise, they are warned, they may end up in court.

The legislation, due to come into force next October as a result of an EU directive, covers a wide range of issues concerning ageism in the workplace.

Currently, staff cannot contest a sacking or redundancy at an employment tribunal on grounds of age discrimination. The legislation will allow them to - and there will be no upper limit on potential compensation.

Giving extra holidays is one of the most popular perks used by employers to prevent workers deserting to a rival. On average, employees are given an extra day off after five years' service, followed by an additional extra day every three years up to a maximum of ten extra days.

It is especially common in the public sector and in companies employing more than 5,000 staff. While the anti-age discrimination rules will not make extra holiday rewards illegal, it is feared companies will stop offering them because of the threat of legal action from younger staff denied the same breaks.

Firms who admit staff to their healthcare scheme after a number of years' service might also have to think again.

Rewarding staff is a highly controversial issue because companies are facing serious recruitment problems at the moment. In a recent poll, more than 40% of firms said that recruitment is a problem, compared to just 30% a year ago.