Voluntary overtime and holiday pay

The Employment Appeal Tribunal (EAT) has decided that pay for statutory annual leave under the Working Time Regulations 1998 should be calculated to include voluntary overtime.

Dudley Metropolitan Borough Council v Willetts and others, EAT

Facts

A group of 56 council workers engaged in housing repairs brought a claim against the Council for unpaid holiday pay. They each worked set contractual hours and worked additional hours on an entirely voluntary basis. They argued that their holiday pay should be calculated to include voluntary overtime, call-out payments and other allowances linked to the overtime. The tribunal concluded that these payments were paid in such a manner, and with sufficient regularity, to be considered part of the claimants’ ‘normal remuneration’. As such, they should be included in the calculation of the statutory holiday pay for the four weeks of leave required by the European Working Time Directive.

The Council appealed to the EAT.

EAT decision

The EAT dismissed the Council’s appeal, upholding the tribunal’s decision. It was satisfied that voluntary overtime pay was paid with sufficient regularity to amount to normal remuneration. Once the claimants had commenced working a shift of voluntary overtime or a period of standby duty or callout, they were performing tasks required of them under their contract of employment, even though the contract itself did not require them to work the overtime.

Consequences

EU law requires that ‘normal’ (not contractual) remuneration is maintained in respect of the four week minimum period of paid leave under the Working Time Directive. This is to ensure that a worker suffers no financial disadvantage by taking the leave. The EAT noted that the exclusion as a matter of principle of payments for voluntary overtime work would amount to an excessively narrow interpretation of ‘normal remuneration’.

It has previously been established that statutory holiday pay should be calculated to include guaranteed and non-guaranteed compulsory overtime pay. This is the first appellate decision to confirm that statutory holiday pay should be calculated to include entirely voluntary overtime, if overtime is worked with sufficient regularity. The decision will, therefore, be binding on employment tribunals deciding other cases concerning the calculation of statutory holiday pay. Employers that have not already done so should review their current arrangements for the calculation of holiday pay and decide on a suitable strategy to account for voluntary, as well as compulsory, overtime.

The content of this article is for general information only. For further information please contact Liz Stevens or a member of Birketts’ Employment Law Team. Law covered as at July 2017.

This article is from the July issue of Employment Law Update, our monthly newsletter for HR professionals. To download the latest issue, please visit the newsletter section of our website.  

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