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Voluntary Overtime should be included in Holiday Pay

In the latest decision on the question of which elements of wage need to be accounted for when calculating holiday pay, Dudley Metropolitan Borough Council v Willetts UKEAT/0334/16/JOJ, the Employment Appeal Tribunal (EAT) held that voluntary overtime payments should be included in holiday pay provided it can be classed as normal pay. This decision is significant since it is the first authoritative judgment issued by the tribunals or courts to examine the grey area of voluntary overtime and holiday pay.

The recent cases have expanded the types of payment that need to be accounted for when calculating holiday pay to include additional payments that an employee regularly receives whilst in employment, to include:

  • commission;
  • productivity/performance bonus;
  • standby/emergency call-out payments; and
  • guaranteed overtime.

These decisions have all focussed on whether the payments in question constitute ‘normal remuneration’. Where they do, they must be accounted for in calculating a normal week’s pay.

The Facts

The Willetts case involved a group of 52 workers who brought claims against Dudley Metropolitan Borough Council for unlawful deduction from wages. The employees were required to work 37 contracted hours each week. On top of this they could volunteer to perform additional duties that were not required by their contracts of employment. The employees were allowed to pick and choose when to work this additional overtime, could not be forced to work these additional hours and were not penalised in any way if they refused to do so. The employees argued that payment for these additional hours should be included in calculating their holiday pay.

The Decision

The EAT’s decision primarily focussed on the overarching principle that workers should receive ‘normal remuneration’ when taking holidays. On this basis, overtime that was regularly and consistently worked by the employees was sufficiently frequent to constitute ‘normal remuneration’ and as such should be included in holiday pay. The payments made in this case were made one in every four/five weeks and that was deemed to be regular. The EAT reasoned that if employers did not include voluntary overtime in holiday pay, employees could be deterred from taking holidays due to their being financially worse off, which is contrary to the purpose of the Working Time Regulations 1998.

This is an important decision that will have an impact on employers across the UK in respect of how they calculate holiday pay. Employers should be aware that if employees work overtime shifts regularly, this should be included in their holiday pay. One off overtime shifts would not normally need to be included. The EAT didn’t provide guidance on what is considered ‘regular’ and this will have to be evaluated on a case by case basis: indeed this is likely to be an area of dispute in future litigations. It is also important to note that overtime and other regular payments only need to be taken into account for the 4 weeks’ holiday provided for by EU legislation, not the additional 1.6 weeks provided by UK law.

This development coupled with the Supreme Court’s decision last week regarding unlawful tribunal fees may mean that employees will be more willing to challenge their employers if there is any doubt about whether overtime payments should be included in holiday pay.

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