A question of fact and degree – when should voluntary overtime payments be included in holiday pay?

29th September 2017

In the case of Dudley Metropolitan Borough Council v Willetts and others, the Employment Appeal Tribunal (EAT) has confirmed that voluntary overtime worked on a regular basis forms part of ‘normal remuneration’ and should therefore be included in holiday pay calculations.

Recent case law has established that compulsory, guaranteed overtime must be included when calculating an individual’s annual leave entitlement (in respect of the four week’s minimum leave provided for under EU law). However, until the EAT’s decision in this case, it was unclear whether purely voluntary overtime should also be included.

The EAT has now cleared up that confusion confirming that voluntary overtime, out-of-hours standby pay and call out allowances should be included in (the 4 week) holiday pay calculations where such payments are made to the worker on a regular enough basis to be considered as ‘normal remuneration’. In reaching its decision, the EAT followed the fundamental principle set down by previous decisions of the European Court of Justice (and subsequently by other appellate courts) that holiday pay should be based on ‘normal remuneration’ to avoid workers being discouraged from taking their full leave entitlement because they might be financially worse off.

Each case will depend on its particular facts as to whether the voluntary overtime (or allowance) in question is worked and paid regularly enough to amount to ‘normal remuneration’. For example, someone who volunteers for overtime very sporadically is unlikely to be able to show that the voluntary overtime forms part of their normal remuneration and should be included in their holiday pay.   The situation could be completely different if that person regularly volunteers and performs overtime (or receives a standby or call out allowance) on a regular basis a few days every month.

Practical points

Employers should assess their overtime practices and holiday pay arrangements. If there are cases where voluntary overtime is likely to be worked (or allowances paid) on a regular enough basis to classify as ‘normal remuneration’ then there could well be some liability for back payment claims and claims going forward. The risk of litigation is greater now that Employment Tribunal fees no longer have to be paid so it is well worth taking steps now to assess exposure.

If you have any questions on this topic please contact David Smedley or Andrew Rayment.