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Voluntary Overtime Must be Considered in Holiday Pay
In the recent case of Dudley Metropolitan Borough Council v Willets & Others, the Employment Appeal Tribunal (EAT) held that pay for voluntary overtime normally worked did amount to ‘normal remuneration’ for the purposes of calculating statutory holiday pay.
A group of 56 Quick Response Operatives (plumbers, electricians, roofers etc.) employed by Dudley Metropolitan Borough Council claimed that they had not been paid the correct rate of holiday pay under the Working Time Regulations 1998 (WTR). The employees each had set contractual working hours and also volunteered to work additional duties which fell outside of their contracts of employment. In addition, the employees participated in out-of-hours on-call rotas and were paid a standby allowance and call-out payment. There was no obligation for the employees to be on the rota and they were free to drop on and off the rota as and when they chose. The employees argued that their holiday rate of pay should reflect the voluntary overtime worked, the standby allowance and the call-out payment.
The EAT held that the overtime pay and allowances should be included in most of the employees’ statutory holiday pay. The EAT noted that the employees were paid in such a manner and with sufficient regularity to be considered part of their normal remuneration. The EAT went on to say that to exclude such payments from holiday pay would result in a financial disadvantage to the employees which might deter the taking of annual leave which, it stressed, is a pillar of EU social law.
What does this mean for you?
The decision confirms the position which was thought to be the case following similar judgments regarding compulsory overtime and holiday pay. This means that employees who regularly work voluntary overtime beyond their contracted hours may now have to have those payments included in their holiday pay calculations. Not all voluntary overtime will have to be included, but the EAT has made it clear that overtime that “extends for a sufficient period of time on a regular or recurring basis” will count in holiday pay calculations. If you regularly offer employees the chance to work voluntary overtime, you need to review the way in which holiday pay is calculated for all staff. Whilst further case law is likely, claims based on this judgment can be brought now and you may be liable to pay further sums for historic underpayments of holiday. Staff have three months to bring claims for underpayments and can go back even further if they can show there was a series of deductions. The EAT has helpfully confirmed in recent case law that where there is a break of three months between underpayments, further historic claims in the Employment Tribunal are lost.
What do you need to do?
This case confirms it is risky not to factor in regular voluntary overtime into holiday pay. If you are in any doubt about the implications of this decision on your business you should seek advice. We have experience of advising a number of clients on the issues covered in this update and have produced guidance to help you be legally compliant. You can contact our specialist employment team on 01392 207020 or e-mail email@example.com.