Holiday pay to include ‘normal’ voluntary overtime

Holiday pay to include ‘normal’ voluntary overtime

ISSUE:

In Dudley Metropolitan Borough Council v Willetts and ors [2017] the Employment Appeal Tribunal (EAT) has held that payments for voluntary overtime which is normally worked are to be taken into account when calculating employees’ holiday pay.  In this context, ‘voluntary overtime’ means overtime which an employer is not obliged to offer, and which a worker may refuse.

In Dudley, 56 council employees performed voluntary additional duties including voluntary overtime which paid additional standby and call out allowances.  The employees contended that the pay received for these additional duties should be included when calculating holiday pay.

The EAT held that the question is whether the payment forms part of a worker’s ‘normal remuneration’, regardless of the label put on it.  Payments (including those for voluntary overtime) will be part of ‘normal remuneration’ where the pattern of work extends for a sufficient period of time, on a regular or reoccurring basis, to justify it as being ‘normal’.  If the payments are ‘normally’ paid, they must be included in holiday pay to ensure there is no financial disadvantage (and thereby a deterrent) to taking annual leave.

The EAT went on to say that whether a payment is ‘normal’ is a question of fact and degree to be considered by a Tribunal in each case.  In Dudley, the EAT concluded that the payments for voluntary overtime were part of normal remuneration for most of the employees.  It will now be for an Employment Tribunal to determine whether the council employees suffered loss in relation to the amount of holiday pay they received.

KEY DATES:

The judgment was released on 31 July 2017.

IMPACT:

It is clear that holiday pay must correspond to normal remuneration.

Whether voluntary overtime is included in holiday pay calculations will very much depend on the circumstances of each case.  As a general rule, whilst items which are usually paid and regular across time count, items which are not usually paid or exceptional do not.

Note that this judgment only applies to the four weeks’ holiday under the EU Working Time Directive.

ACTION:

Employers who operate voluntary overtime should consider the potential for claims in light of this recent development.

Published: 3 August 2017

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