The EAT Rule’s Voluntary Overtime Must Form Part of the Holiday Pay Calculation!
The recent EAT decision in Dudley Metropolitan Borough Council v Willetts and others is the latest in a swathe of recent holiday pay cases which are all underpinned by one principle – a worker’s holiday pay must reflect a worker’s normal remuneration. Accordingly, the EAT has decided that voluntary overtime may be considered part of normal remuneration and therefore should figure in the calculation of holiday pay.
Background of the Case
The claim was brought before the employment tribunal by a group of fifty-six individuals (‘the Claimants’) who were employed by the Council. Generally, each of the Claimants was contracted to work thirty-seven hours per week, in addition to an agreed two-to-four hours of overtime. In addition, it was accepted that the Claimants also performed additional duties on an entirely voluntary basis, and that ‘this additional work was performed almost entirely at the whim of the employee, with no right to enforce work on the part of the Council’.
The Claimants argued that the failure by the Council to include payments and allowances made in respect of this ‘voluntary overtime’ in its holiday payment calculations constituted unlawful deductions from wages.
The tribunal held that where employees only work voluntary overtime on an occasional basis, payments and allowances made in respect of such overtime need not be factored in to an employer’s holiday pay calculations. However, where employees work voluntary overtime on a regular basis, payments and allowances made in respect of such overtime do need to be factored in to an employer’s holiday pay calculations in respect of the first four weeks’ holiday. The Council appealed the decision to the EAT.
The EAT dismissed the Council’s appeal. In doing so, the EAT created a binding principle that, where voluntary overtime is performed by an employee with sufficient regularity, payments relating to that overtime must be included in an employer’s calculations. Providing guidance on how ‘regular’ the voluntary overtime must be in order for it to form part of holiday pay calculations, the EAT emphasised that tribunals will need to consider whether a pattern of work is ‘sufficiently regular and settled’ such that it may justifiably be described as ‘normal’ for the employee. The EAT did not, however, set out any ‘hard and fast’ rule to assist tribunals in determining this issue of ‘regularity’. Instead, it was confirmed that this will be a question of ‘fact and degree’ for tribunals to consider on a case-by-case basis.
After this ruling, employers would be well advised to closely assess the overtime arrangements that exist within their business, and to review whether their current holiday pay arrangements adequately take into account employees’ remuneration in respect of any such arrangements.
This bulletin is for general guidance purposes only and should not be used for any other purpose.
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