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Case update (3): Holiday pay and voluntary overtime

What do we already know?

We updated you in our August Newsflash Holiday pay and voluntary overtime on the EAT’s decision that payments for voluntary overtime that is normally worked must be included when calculating holiday pay for the first four weeks of holiday provided by EU law and the Working Time Regulations (Dudley Metropolitan Borough Council v Willetts and Others).

What’s new?

We promised in our above Newsflash that we would unpick the detail of the above case so here it is…

Summary:  Can voluntary overtime qualify as “normal remuneration” for the purposes of calculating holiday pay for the first four weeks of holiday provided by EU law?

Yes, and also payments for other voluntary elements of work too, says the EAT in Dudley Metropolitan Borough Council v Willetts available here.

Facts:  Five employees brought a Tribunal claim against their employer, Dudley Metropolitan Borough Council (the Council), on behalf of 56 other employees.

The employees had received holiday pay but argued that they had not received the correct rate of pay as their holiday pay did not include amounts in respect of voluntary overtime, voluntary standby allowances, voluntary call-out payments and travel allowances which they would have received had they been in work.

The employees all worked different shift patterns, and undertook different amounts of voluntary overtime and the frequency which they worked voluntary overtime also varied.

Tribunal decision

The Tribunal concluded that the majority of the additional elements, which were all in relation to voluntary work, should be included in the Claimant’s holiday pay the first for the four weeks of holiday provided by EU law. Specifically:

By way of example, two employees worked regular Saturdays – one worked every Saturday and the other one worked most Saturdays, but not every week. Both these employees were considered to work this overtime sufficiently regularly for it to be considered part of “normal pay”. However, another employee only received overtime in major emergencies and on other odd occasions; as a result that pay was not considered normal pay.

The Tribunal went on to clarify that its decision only applied to the first four weeks of holiday leave (i.e. the statutory holiday entitlement provided for under the Working Time Regulations). The calculation of holiday pay in respect of any further leave would only need to include regular pay plus any element of agreed contractual overtime.

The employer appealed the Tribunal’s decision to the EAT.

EAT decision

The EAT upheld the Tribunal’s decision.

The EAT explained that as holiday pay must correspond with “normal remuneration”, any payments in respect of voluntary elements of work that are paid over a sufficient period of time on a regular basis fall within this definition.

The key points from the EAT’s decision are:

Implications:  This is the first EAT decision on the status of voluntary overtime when calculating holiday pay. It is an important development and one which will affect those employers who have been holding the line that voluntary overtime need not be included in holiday pay calculations. The case concerned a range of voluntary payment types meaning that, as well as those businesses that operate voluntary overtime arrangements, any employers using other voluntary practices (such as standby and on-call arrangements) are likely to be affected.

However, the EAT offered little by way of further guidance on what level of regularity or frequency is required in order for a payment to qualify as “normal remuneration”. Therefore this is a question which employers and future Tribunals are left to grapple with and, therefore, a good deal of uncertainty remains. Hopefully the employer will appeal to the Court of Appeal and, if so, we’ll be sure to let you know.


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