Voluntary overtime counts towards holiday pay
Hard on the heels of the Supreme Court’s ruling on Tribunal fees last week, the Employment Appeal Tribunal (EAT) in Dudley Metropolitan Borough Council v Willetts and others has ruled that voluntary overtime should be taken into account when calculating holiday pay.
By way of recap, the current position was that overtime which was guaranteed and non-guaranteed was accepted to be included in the calculation of holiday pay. This was on the basis that they met the requirement that it was work which was intrinsically linked to the performance of work required under the contract of employment, which if worked would be regarded as amounting to their ‘normal’ pay. However, the position on voluntary overtime – so that which an employer is not obliged to provide and the employee is not obliged to work – was left unclear.
This case concerned 56 employees who worked as electricians, plumbers, roofers, storemen, operations officers and quick response operatives. They were contracted to work 37 hours per week. In addition to these hours, they could volunteer to perform additional duties (not required by their contracts), which included out-of-hours standby pay, call-out allowances and voluntary overtime. The employees brought Employment Tribunal claims on the basis that these payments for voluntary duties should be taken into account when calculating holiday pay.
The Tribunal ruled in favour of the employees. It concluded that the payments were made with such regularity that they could be considered as part of normal remuneration. It was also in line with the principles that a worker who received such standby payments should not be deterred from taking annual leave and were intrinsically linked to the work required under their contracts.
The EAT held that, where such voluntary overtime payments are made and form part of normal remuneration, they should be taken into account when calculating holiday pay so there is no financial disadvantage which may deter the employee from taking their annual leave.
However, the EAT commented that the question of whether such payments count as normal remuneration will depend on the regularity of the same over a sufficient period of time. On the facts before them, there was no reason to suspect that the payments in this case were not regular.
The EAT also found that when the employees commenced a period of standby duty or call-out shift, they were performing roles required of them under their contracts of employment even if there was a separate arrangement dealing with standby or call-out duties. The payments were all directly linked to tasks they were required to perform under their contracts. So essentially when they began such shifts, the employees were in no different position to employees who were required by their contracts to perform the same.
Although this decision now clarifies the position on voluntary overtime, the regularity of payments for the purposes of ‘normal’ remuneration will be key. As this case illustrates, payments made at a rate of 1 week in 4 or even 5 could be held to be sufficiently regular.