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03 October 2017

67: Voluntary overtime must be included in holiday pay

In Dudley Metropolitan Borough Council v Willetts and others, the Employment Appeal Tribunal (EAT) has provided further clarification of the law on holiday pay, confirming that voluntary overtime can qualify as ‘normal remuneration’ if it is paid over a sufficient period of time on a regular basis.

This case was brought by 56 employees of Dudley Metropolitan Borough Council. As well as working their set contractual hours, they volunteered for additional duties and participated in on-call rotas for which they were paid a standby allowance plus a call-out payment if they had to work whilst on call. There was no obligation on the employees to accept an offer of overtime, or to participate in the on-call rota. The employees claimed that their holiday pay should include this voluntary overtime, as well as out-of-hours standby and call-out payments.

The Employment Tribunal held that, for most of the employees, the voluntary overtime pay and allowances should have been included in holiday pay for the four weeks’ statutory minimum leave because they were paid with sufficient regularity to be considered part of normal remuneration.

The EAT agreed with the Tribunal’s reasoning. It is an established principle of EU law that holiday pay must correspond to normal remuneration so as not to deter workers from taking their annual leave. Whether a payment amounts to normal remuneration is for a Tribunal to decide on the facts of a particular case, but any elements of pay that are sufficiently regular or recurring are likely to qualify as normal. The EAT rejected the Council’s argument that a payment must be intrinsically linked to the performance of tasks under the contract of employment, a test which has been applied in previous cases. In the EAT’s view, once the claimants began working a shift of voluntary overtime or a period of standby or call-out, they were performing tasks required of them under their contracts of employment in any event.

This decision clarifies that payments for voluntary elements of work, not just overtime, must be treated no differently for holiday pay purposes than the compulsory non-guaranteed overtime dealt with in Bear Scotland Ltd v Fulton. Employers should now assess whether employees receive regular payments which should be included in their statutory holiday pay. This may not always be straightforward, and the EAT did not provide guidance on what level of regularity or frequency is required for a payment to qualify as normal remuneration.

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