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Holiday pay and voluntary overtime

During their four weeks annual leave under the Working Time Directive an employee is entitled to receive “normal remuneration”. “Normal remuneration” should include anything intrinsically linked to the work performed by the employee under their contract of employment.

Following the Bear Scotland decision we now know that compulsory non-guaranteed overtime should form part of normal pay and be included when calculating holiday pay. However, the question of whether voluntary overtime should also be included as part of “normal remuneration” is technically still open for debate.

We recently covered the decision from the Northern Ireland Court of Appeal in the case of Patterson v Castlereagh Borough Council and the Tribunal decision in White & Others v Dudley Metropolitan Borough Council, both of which held that voluntary overtime can, in principle, be included for the purposes of calculating holiday pay. Whilst neither of these decisions is binding they are indicative of the approach that tribunals are now taking; the latest holiday pay case of Brettle and Others v Dudley Metropolitan Council also reinforces these decisions.

Background

The case of Brettle concerned 56 employees of Dudley Metropolitan Council, responsible for the repair and improvement of housing stock. The claimants argued that they had suffered an unlawful deduction from their wages because their holiday pay had been miscalculated. In particular, they argued that their holiday pay should include voluntary overtime and other voluntary payments including stand-by allowances. The council had only calculated their holiday pay based on their basic contractual hours.

Decision

The Tribunal stated that whilst “we are sailing into uncharted waters” and “there is nothing in the case law which specifically deals with voluntary overtime” the test is fundamentally about what amounts to “normal pay” and that employees should suffer no disadvantage in taking leave. The Tribunal held that “regular” overtime was normal pay and should be included in the holiday pay calculation, whereas “unusual or “rare” overtime was not normal pay and should be excluded. In this particular case the Tribunal stated that the additional payments paid to the claimants had been made with “sufficient regularity” to constitute normal pay and so should be included in the calculation for holiday pay by the council.

The Tribunal also confirmed that voluntary overtime should only be included in the first four weeks of holiday pay, which is the annual leave derived from the Working Time Directive; the remaining 1.6 weeks of annual leave, which is derived from our domestic legislation, can be calculated according to basic pay only. The case also confirmed that the first four weeks of annual leave is deemed to be taken first, unless there is an agreement to the contrary.

Comment

Whilst this decision isn’t binding it is persuasive and sheds further light on the way that Tribunals are likely to decide similar cases in the future. Whilst it is probably safe to exclude “rare” and “unusual” voluntary overtime from holiday pay, employers should assess any potential liability for “regular” voluntary overtime and consider if, and when, to include voluntary overtime in its holiday calculations. Whilst some employers may wish to wait for a binding decision others may be happy to accept the direction of travel and absorb the additional cost now. Whichever approach an employer adopts, there is still a great degree of uncertainty about what amounts to “regular” overtime which will be a question of fact in each case.

It is also worth noting that we are still waiting for the Court of Appeal’s decision in Lock v British Gas. In this case the Employment Appeal Tribunal found that employers are obliged to take into account commission payments when calculating holiday pay, however this has been appealed by British Gas and we are expecting the decision of the Court of Appeal imminently.

Blog posted 19 September 2016

Read all our holiday pay blogs here

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