Holiday pay must now include regular voluntary overtime

The vexatious issue for employers of calculating staff holiday pay, complicated by evolving case law over the last few years, has received some clarification, at least for now, after a recent ruling by the Employment Appeal Tribunal (EAT).

Employees who regularly work voluntary overtime beyond their contracted hours must now have those payments included in the first four weeks' holiday pay meaning employers need to apply this ruling to avoid potentially expensive tribunal claims.

Background

A group of 56 workers employed by Dudley Metropolitan Borough Council's (Dudley MBC) housing repairs team, including electricians, storemen, roofers, plumbers and operations officers, brought claims arguing that their holiday pay should have included the payments and allowances they received for regular voluntary overtime.

They took their case to an employment tribunal which found in their favour. It held that the payments for overtime were intrinsically linked to the performance of the employees' duties and that this happened regularly enough for the payments to be considered 'normal remuneration'. The council appealed to the EAT.

'Normal' overtime

Although the EAT had previously ruled that holiday pay should include non-guaranteed overtime which the worker must work at the employer's request, it was the first time it had been asked to consider whether purely voluntary overtime should also be included.

It upheld the tribunal's decision and held that voluntary overtime pay must be included in the first four weeks' holiday pay if the overtime pattern justifies the description 'normal'. The ruling does not apply to occasional overtime.

The Judge said: "It seems to me that once the claimants commenced working a shift of voluntary overtime or a period of standby or callout, they were performing tasks required of them under their contracts of employment even if there was also a separate agreement or arrangement.

"The payments made were all directly linked to tasks they were required to perform under their contracts of employment and, once these shifts or standby periods began, they were in no different position from an employee who is required by his contract to work overtime or be on standby or attend callouts."

Implications for employers

In a nutshell, the ruling means that if a worker works overtime often and regularly enough on a recurring basis over a period of time, overtime payments need to be included in their 'normal' pay. Not doing this could deter a worker from taking holiday because they would lose out financially as a result.

The good news is that a rush of back-dated claims is unlikely because a claim for unlawful deduction from wages cannot be brought when there has been a break of more than three months between holiday payments.

But if you have not yet made changes to your holiday pay schemes, now is a good time to look at how best to do so.

Although the decision clearly only applies to the first four weeks of holiday pay (the portion required under EU law) it will probably be easier administratively, and more cost effective, to apply the ruling to all holiday pay.

Current position

Although the council could appeal the decision again, the current position is that holiday pay should include an amount in respect of any normal pay normally received by workers including:

• Overtime of any sort - voluntary, compulsory or guaranteed;
• Shift allowances;
• Commission payments;
• Stand by payments;
• Call out payments;
• Any travel payments treated as taxable remuneration (as opposed to reimbursement of expenses).

For more information about this area of the law, please contact Wards Solicitors' business employment team.