In Dudley Metropolitan Borough Council v Willetts, the Employment Appeal Tribunal (EAT) held that voluntary overtime that is normally worked should be included when calculating an employee’s holiday pay.
Peter Stanway, our BackupHR™ legal expert comments:
In recent years, there have been several high-profile cases that have considered how employers should calculate statutory holiday pay for their workers and to what extent employers should take account of variable payments, such as commission and overtime. The extent to which overtime should be included has been particularly problematic, with tribunals drawing distinctions between different types of overtime.
According to EU law workers should take their full holiday entitlement; getting ‘normal remuneration’ while on paid leave, to ensure that workers are not put off taking holidays by receiving less than their normal pay during this time.
Mr Willetts, on behalf of 56 employees who worked for the Council as tradespeople, brought claims for unlawful deduction of wages. The employees were contracted to work 37 hours per week, with many having an additional right to work overtime. The employees also performed additional voluntary duties, such as working out-of-hours standby shifts, attending call-outs and working voluntary overtime, for which they received additional payments. Their earnings for this additional voluntary work could amount to around £6,000 a year on top of their basic salary.
The Employment Tribunal held that the payments were intrinsically linked to the performance of the employees’ duties and that they performed the duties with sufficient regularity for the payments to be considered ‘normal remuneration’.
The EAT dismissed the Council’s appeal. It noted that the ECJ in a previous case had set down the overarching principle that holiday pay should correspond to ‘normal remuneration’ so as not to dissuade workers from taking leave; and that the division of pay into different elements cannot affect a worker’s right in this regard. For a payment to count as ‘normal’, it must have been paid over a sufficient period of time.
The question in every case, irrespective of the label put on the payment, is whether the payment forms part of the worker’s “normal remuneration”. Voluntary overtime that satisfies this test must be included in holiday pay.
Implications
The EAT’s reasoning provides helpful guidance on when voluntary overtime should be included in the calculation of holiday pay:
- EU law requires that “normal” (and not contractual) remuneration must be maintained in respect of the four week period of annual leave.
- For a payment to count as “normal” it must have been paid on a regular and/or recurring basis, which is a question of fact and degree in each case.
- Items that are not usually paid, or are exceptional, are not “normal pay”.
The guidance provided in this article is just that – guidance. Before taking any action make sure that you know what you are doing, or call us for specific advice.
