The Employment Appeal Tribunal has held that payment for voluntary overtime normally worked must be included in holiday pay.
The question in every case, irrespective of the label put on the payment, is whether the payment forms part of the worker's "normal remuneration".
In a decision with major consequences for employers, the EAT in Dudley Metropolitan Borough Council v Willetts and ors held that voluntary overtime that satisfies the "normal remuneration" test must be included in the calculation of holiday pay. This would be for the first four weeks of annual leave provided for by the Working Time Regulations 1998.
The case concerns 56 employees who were employed as specific and multi-skilled tradesmen engaged in the repair and maintenance of the Council’s housing stock. The Council calculated their holiday pay based on their core contractual hours only.
In addition to their core hours, the employees worked voluntary overtime and could join a standby rota for out-of-hours emergency work. An additional payment for all voluntary work, out-of-hours standby and call-outs would then be paid. The Council excluded all of the additional payments from their calculation of holiday pay on the grounds that it was not contractual pay.
The original Employment Tribunal found in favour of the employees, holding that holiday pay must include payments for voluntary overtime, voluntary standby and voluntary call-out payments, where that work has been undertaken with sufficient regularity to have become part of the employee's normal pay. The Council appealed but the Tribunal's decision was upheld.
The EAT's reasoning provides helpful guidance on when voluntary overtime should be included in the calculation of holiday pay:
By upholding the tribunal's decision, helpful examples of voluntary overtime that can form part of "normal remuneration" on the facts of this case can be seen:
This is the first binding decision on the inclusion of voluntary overtime in holiday pay. It provides clear guidance to employers that regular voluntary overtime should be included within the payment for the first 4 weeks of statutory holiday. Voluntary overtime does not have to be included in the holiday pay for the additional 1.6 weeks of holiday provided for under the Working Time Regulations or any additional contractual holiday that an employer may provide.
Employers should be minded to review their current practice with regard to voluntary overtime and holiday pay. If you would like to discuss further how this decision impacts on your business please get in touch.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.
Contributors: Stuart McBride and Amy Whiting