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Holiday Pay: Should voluntary overtime be included in the calculation?

One of the unresolved issues from the Bear Scotland holiday pay case was whether voluntary overtime has to be included in the calculation of holiday pay for workers or employees with normal working hours.

The question has now been considered by the Employment Appeal Tribunal in Dudley Metropolitan Borough Council v Willets and others.

The employees in this case received a number of payments for additional voluntary hours – out of hours standby pay, call out allowance, voluntary overtime and a mileage or travel allowance. The Employment Tribunal said that it was it was sailing into “uncharted waters” but concluded that all these payments should be taken into account when calculating the first 4 weeks of holiday entitlement (but not the additional 1.6 weeks provided under Reg 13A of the Working Time Regulations) as they formed part of “normal pay”. However the Employment Tribunal did recognise that there had to be a certain regularity to the payments and noted:

“Some of the employees undertake regular overtime such that it will fit within the definition of “normal pay”, other do not”

The Employment Appeal Tribunal upheld the decision, confirming the overarching principle is the maintenance of “normal” pay during holiday, in other words the pay that is normally received when working.

In doing so it rejected an argument on behalf of the Council that there was an insufficient link between the payments and the tasks the employees were “required” to perform under their contracts of employment and held that “normal” and not “contractual” remuneration had to be paid for the first 4 weeks of holiday. In any event when the employees were carrying out voluntary overtime they were carrying out task required under their contracts even if that was as a result of a separate agreement or arrangement to do so.

It also considered the question of regularity and held that:

“Further, for a 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 paid and regular across time may do so”

The Employment Appeal Tribunal rejected the argument of the Council that payments made on a broadly regular basis of once every 4 or 5 weeks should be excluded from the calculation of holiday pay. The Council argued that the employees could take holidays in weeks when no  overtime was worked and therefore would not be financially disadvantaged by taking holiday (and as a result discouraged from taking it). The EAT held:

“Moreover, I see no difficulty in principle in concluding that a payment is normally made over a sufficient period of time on a regular basis, say for one week each month or one week in every 5 weeks, even if not paid more frequently or even each week. These are questions of fact for a tribunal and here in my judgement, the tribunal was entitled to find that pay for working on this basis was normal remuneration. It was neither exceptional not unusual…”

Comment

The decision will not come as a surprise to many employers who have anticipated the way in which the wind has been blowing concerning holiday pay, but this is the first decision of the Employment Appeal Tribunal dealing with what it described  as an “important issue”. Subject to an appeal to the Court of Appeal then consideration should be given to including voluntary overtime when calculating the first 4 weeks of holiday pay if it is currently excluded.

If overtime is carried out on an occasional or exceptional basis it may be possible to exclude it but overtime undertaken on a regular basis (even if not every week) may need to be included. Ultimately what counts as regular overtime is going to be a question of fact to be determined by the Employment Tribunal hearing any case.

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Legal news, views, trends and tools for HR Professionals. Stay ahead. Go further