Should voluntary overtime be included in the calculation for holiday pay?

As we approach the festive period with its usual increase in demand for employees to work overtime, it is a good time to review the ruling in Dudley Metropolitan Borough Council v Willets and Others.

In this case the Employment Appeal Tribunal (EAT) decided that in calculating holiday pay, employers must include payments for voluntary overtime where these have formed part of the worker’s normal remuneration.

What is ‘a weeks’ pay’?

The Working Time Directive states that workers are entitled to 5.6 weeks of statutory holiday, which must be paid at the rate of a week’s pay, as defined in the Employment Rights Act 1996.

A number of cases have come before the courts to determine what ‘a week’s pay’ is.

What is ‘normal remuneration’?

In Robinson-Steel v RD Retail Service Ltd, the European Court of Justice (ECJ) held that workers must continue to receive their ‘normal remuneration’ while on holiday.

The concept of ‘normal remuneration was subsequently considered in a series of cases before the ECJ.

In Williams and others v British Airways plc, the ECJ held that pilots’ holiday pay entitlement under the Aviation Directive should not be limited to only their basic pay but must correspond to ‘normal remuneration’ and thus include:

  • Remuneration that is intrinsically linked to the performance of tasks that they are contractually obliged to perform, and
  • Payments that relate to professional or personal status, which includes payments relating to a worker’s seniority, length of service or professional qualifications

This had an impact on how cases were decided in the English courts. For example, in Neal v Freightliner Ltd, an employment judge held that a worker’s overtime payments had to be taken into account when calculating holiday.

In Bear Scotland Ltd v Fulton and another, the EAT considered whether non-guaranteed overtime must be taken into account when calculating statutory holiday pay. It decided that workers who worked regular overtime but had the option to refuse on reasonable grounds were entitled to have that overtime included in their holiday pay. The decision in Wood and others v Hertel (UK) Ltd and another confirmed that this was also applicable to compulsory overtime.

Dudley Metropolitan Borough Council v Willetts and Others

In this case, Mr Willetts and his colleagues, employed by Dudley Metropolitan Borough Council as plumbers, roofers, electricians and other roles, brought holiday pay claims against the council. The employees had set contractual hours per week, which counted as their ‘normal working hours’. The employees also volunteered to perform additional duties which were outside of their contractual obligations. The voluntary hours that had been worked had been excluded from the calculation of holiday pay.

The individuals brought a claim in the Employment Tribunal (ET).

The ET held that these payments should be included in calculating holiday pay. The council appealed to the EAT, which upheld the ET’s decision saying:

‘for the payment to count as ‘normal’, it must have been paid over a sufficient period of time. This will be a question of fact and degree. Items which are not usually paid or are exceptional do not count for these purposes. But items that are usually and regular across time may do so.’

In this case the EAT had drawn on previous ECJ decisions which emphasised that workers should receive their ‘normal pay’ when they take a holiday. It also stated that workers should not be deterred from exercising their rights to take paid annual leave – any reduction (including not including voluntary overtime) in their salary is presumed to act as a deterrent.

What should employers do?

Employers should review their policies and practices to ensure that holiday pay is calculated appropriately and particularly whether voluntary overtime should be included in the calculation.

The frequency and regularity of voluntary overtime will be relevant in deciding whether it should be included. Purely ad hoc or irregular overtime does not have to be included.

The EAT stated that overtime that ‘extends for a sufficient period of time on a regular basis’ and has become part of the worker’s normal pay must be included. This will include regular overtime worked at certain times of the year – and  potentially can include overtime worked over the Christmas period, as well as overtime worked frequently during the year.

If you have any questions please contact:

Sejal Raja
Partner and Head of Employment
T. 020 7227 7410
E. sejal.raja@rlb-law.com


Disclaimer

This briefing is for guidance purposes only. RadcliffesLeBrasseur accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.

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