Contractors will be “worried” about labour cost increases after a tribunal hearing ruled employers should include overtime pay in workers’ holiday pay.
According to Construction News, the employment appeal tribunal judge delivered the verdict following appeals by Amec and Hertel against a decision in favour of workers at a previous employment tribunal in February 2014, and a third case involving road maintenance firm Bear Scotland.
The judge said overtime pay should be considered as part of “normal remuneration” and included in calculations of holiday pay.
Traditionally, the majority of infrastructure employers in the UK have not included voluntary overtime in their calculation of holiday pay.
Pinsent Masons partner Ed Goodwyn said the decision was likely to be appealed, but warned that it “should be sounding alarm bells in boardrooms around the UK, as the outcome of the case will have a direct effect on company financial results”.
Following the ruling, business secretary Vince Cable announced he would set up a taskforce of government departments and seven business representative groups, including the Civil Engineering Contractors Association, to discuss how its impact could be limited.
CECA chief executive Alasdair Reisner said: “Contractors will rightly be worried about the potential impact that today’s decision [could have] on their businesses.”
Union Unite had brought the original case against Amec and Hertel on behalf of 16 members who had worked on a project at the West Burton power station site in Nottinghamshire.
They were required to work overtime and received payments for the time they spent travelling.
However, those payments were not included in holiday pay, meaning workers received less pay when on holiday, compared with the time they spent working.
Amec and Hertel were successful in their appeal that taxable payments for time spent travelling to work did not fall within “normal remuneration” for the purposes of calculating holiday pay.
The companies also appealed against the employment tribunal’s findings that workers could claim back-dated arrears of pay as “unlawful deductions” from their wages.
However, the judge ruled that workers could only make claims for back-dated pay for a limited time period, no more than three months from the last incorrect payment received by the employee.
Tim Thomas, head of employment policy at the manufacturers’ organisation EEF, warned the ruling could have “far-reaching and potentially damaging consequences for jobs and investment”.
He said: “In the short term, over nine in 10 manufacturers (93 per cent) are set to see payroll costs spiral.
“But the real damage will come further down the line – six in 10 firms will have little option but to factor the additional costs in to future pay negotiations, while over half will look to reduce overtime – a quarter may even be forced to reduce headcount.”
Unite executive director for legal, membership and affiliated services Howard Beckett said: “Up until now some workers who are required to do overtime have been penalised for taking the time off they are entitled to.
“This ruling not only secures justice for our members who were short-changed, but means employers have got to get their house in order.”
Construction union Ucatt also welcomed the decision and said it would work to ensure construction employers were complying with the decision.
Ucatt general secretary Steve Murphy said: “Construction workers are often reliant on overtime to make ends meet. Workers should not be penalised by having their pay cut when taking holidays.”