Voluntary overtime and holiday pay

Dudley Metropolitan Borough Council v Willets

In the first binding authority to consider the issue, the EAT has held that entirely voluntary overtime counts as ‘normal remuneration’ for the purposes of calculating statutory holiday pay under reg. 13 of the Working Time Regulations (i.e. the 20 days’ leave provided for by the Working Time Directive).

Background and tribunal decision

Mr Willets and others worked for Dudley MBC in a variety of roles (electricians, plumbers, etc.) looking after Dudley’s housing stock. They had fixed contractual working hours (a few also worked a some additional hours of compulsory and guaranteed overtime). All of them worked additional voluntary overtime. They also volunteered to be placed on a standby and call-out rota for out-of-hours emergency work. They were paid for their voluntary overtime and their voluntary standby and call-out time. Dudley MBC calculated holiday pay based on contractual hours only. It excluded the voluntary overtime, standby and call-out payments. Mr Willets brought a tribunal claim arguing that these additional sums should have been included in their holiday pay.

A tribunal held that the payments had been made with sufficient regularity that they were part of the employees’ normal pay and should be included in the calculation of holiday pay – but not included in holiday pay in respect of the additional 8 days’ arising under the WTR or any additional contractual entitlement. Dudley MBC appealed, arguing that payments for such work shouldn’t count as ‘normal remuneration’ as they lacked the necessary intrinsic link to the performance of tasks required under the contract of employment.

EAT decision

The EAT dismissed Dudley MBC’s appeal. The judgment, delivered by the President of the EAT, entailed a detailed analysis of EU and UK law and its corresponding case law.

The overarching principle of EU law requires that normal remuneration must be maintained in respect of the 4-week period of leave mandated by the directive. The relevant element of pay must be assessed in light of this overarching principle which is to maintain normal remuneration so that holiday pay corresponds to (and is not simply broadly comparable to) remuneration while working.

Essentially, the EAT drew a distinction between overtime that is normally worked and paid, and overtime which is exceptional or which is usually unpaid. The key question is whether overtime can properly be said to form part of an individual’s normal pay. For a payment to count as ‘normal’ it must have been paid on a regular and/or recurring basis over a sufficient period. This will be a question of fact and degree in each case. Here, overtime worked one week in every five was considered sufficiently regular. In contrast, items which are not usually paid or are exceptional do not have to be factored into holiday pay.

Link to judgment: http://www.bailii.org/uk/cases/UKEAT/2017/0334_16_3107.html

Comment

This decision is not unexpected in light of recent cases and the direction of travel on calculation of holiday pay. However, it only applies to the statutory 20 days although in practice we are finding that many employers are not making that distinction.

This decision subsequently was followed in Flowers v East of England Ambulance Trust where the EAT also held that voluntary overtime was part of normal remuneration if it was paid over a 'sufficient period of time'. 

We are still awaiting a decision in Lock as to the correct reference period to be used for calculating holiday pay. Is it the previous 12 weeks as currently provided for in the WTR or is it averaged over 12 months? Employers would no doubt prefer 12 months as this would prevent employees working excessive overtime in the months before a holiday.

See our guide to Holiday, overtime and commission.