Voluntary overtime must be included in holiday pay
Voluntary overtime should be treated in the same way as other forms of paid overtime and must be included in the first four weeks of workers’ holiday pay, the Employment Appeal Tribunal (EAT) has ruled.
This decision is extremely important and will benefit thousands of workers. Many employers have adopted a ‘wait and see’ approach and, so far, have not included regularly worked voluntary overtime in holiday pay. Thousands of cases dealing with the same issue have been brought in employment tribunals and this decision provides much needed clarity for employers and their staff.
The case: Dudley Metropolitan Borough Council v. Willetts (and others)
Holiday pay claims were brought against the council by a group of 56 employees responsible for the repair and maintenance of council houses. They worked a set number of hours per week, which counted as their ‘normal working hours’. In addition, once in every four or five weeks they were on an on-call register and worked additional voluntary hours. However, these voluntary payments were excluded from their holiday pay and the workers argued that this was contrary to the Working Time Regulations 1988.
Their claims were initially successful and the council appealed to the EAT on the basis that purely voluntary overtime should be treated differently from overtime workers had to perform.
This is the first occasion the EAT has heard cases relating to purely voluntary overtime and its decision is binding on employment tribunals.
Despite some very creative arguments put by the council, the EAT drew on previous Court of Justice of the European Union decisions which emphasised that workers should receive their ‘normal pay’ when they take a holiday. The EAT stated that workers should not be deterred from exercising their rights to take paid annual leave and any reduction in salary is presumed to act as a deterrent.
Does all voluntary overtime have to be included in holiday pay?
No, purely ad hoc or irregular overtime does not have to be included. However, overtime that ‘extends for a sufficient period of time on a regular and/or recurring basis’ and has become part of the worker’s normal pay must be included. This will include regular overtime worked at certain times of the year (such as over the Christmas period) as well as overtime worked frequently throughout the year.
There is no statutory definition of what amounts to ‘normal pay’ and Tribunals will continue to hear arguments about whether overtime (of whatever nature) has become part of an employee’s normal pay.
However, this has become more difficult. The EAT specifically rejected arguments that normal weekly pay for these workers did not include voluntary overtime because it was only worked once every four or five weeks and could not therefore be said to amount to their normal working pattern. The EAT said that workers do not have to be paid for working voluntary overtime each week for this to amount to a regular pattern.
Does voluntary overtime have to be included in all holiday pay?
No. Where workers’ normal pay varies each week, employers are required to work out their holiday pay by averaging their pay over the previous 12 weeks. This calculation will now have to include voluntary overtime (and any other regular payments or allowances linked to work). But this requirement only relates to the first 20 days’ leave taken in each holiday year (calculated pro-rata for part-time staff) not to additional statutory leave (eg the further mandatory eight days), or contractual leave in excess of this.
This article first appeared on peoplemanagement.com and is reproduced with kind permission.