Should employers include overtime when calculating holiday pay?
As Summer draws to an end some of us may find ourselves reminiscing about our Summer holidays and those days spent on the beach sipping a cocktail and reading a book with our feet up. However, following the recent Employment Appeal Tribunal decision, some may also be wondering if they were paid sufficient holiday pay by their employers for this time off.
The Working Time Regulations 1998 (as amended) implement the EU’s Working Time Directive into the UK. The Regulations (as amended) state that an employee in the UK is entitled to a minimum of 5.6 weeks holiday pay every year (28 days for an employee working 5 days a week).
In recent years there have been various cases discussing whether variable payments such as commission and voluntary overtime, which are paid in addition to standard salary, should be taken into account when calculating this statutory holiday pay.
In Bear Scotland and Others v Fulton and Others, the Employment Appeal Tribunal (EAT) held that if an employee is contractually obliged to work overtime if requested to do so by their employers, on a sufficiently regular basis, that overtime should be included for the purposes of calculating holiday pay. However the EAT did not clarify the position regarding voluntary overtime as that was not applicable in that particular case.
There have been various judgements issued by the Employment Tribunal (ET) which seem to suggest that voluntary overtime should be included when the employer is calculating ‘normal remuneration’ for holiday pay. However as ET decisions are not binding, employers have been waiting for a binding EAT decision on this subject to provide some further clarity on this area.
This decision came in Summer 2017 in the case of Dudley Metropolitan Borough Council v Willetts and others UKEAT/0334/16/JOJ. In this case the EAT found that voluntary overtime that is worked by an employee on a sufficiently regular basis, should be included in the calculation for holiday pay.
What happened in this case?
- Mr Willetts and 4 other lead claimants (on behalf of 56 Council employees) brought claims for unlawful deduction of wages against Dudley Metropolitan Borough Council.
- The employees, who were responsible for the repair and maintenance of council houses, were contracted to work 37 hours per week which was their normal working hours.
- In addition to their normal working hours the employees were on an on call register every 4 or 5 weeks and worked voluntary overtime, which they received payment for in addition to their basic salary.
- The Council did not include these additional voluntary overtime payments in the calculation for each employees’ statutory holiday pay.
- The employees claimed that they had been underpaid and that the voluntary overtime should have been included when calculating their holiday pay in accordance with the Working Time Regulations. They took their collective claim to the Employment Tribunal.
The Employment Tribunal decision
The ET found in favour of Mr Willetts and his colleagues.
They held that the additional payments were intrinsically linked to the performance of the employees’ duties and that they performed the duties with sufficient regularity for the payments to be considered ‘normal remuneration’ for the purposes of calculating holiday pay.
The Council therefore should have included these voluntary overtime payments when calculating holiday pay.
The Council was ordered to pay the shortfall in holiday pay to the employees.
The Council appealed the decision.
The Employment Appeal Tribunal decision
The EAT dismissed the Council’s appeal and upheld the ET’s decision.
The EAT held that payments to employees for voluntary overtime and call outs should be included within the calculation for holiday pay when the payments are sufficiently regular. In this scenario, the payments were sufficiently regular and therefore they should be included.
This case is confirmation for employers that voluntary overtime should be included in the calculation of holiday pay if the overtime is sufficiently regular. In this case the fact that overtime was worked every 4 of 5 weeks was deemed to be sufficiently regular but the EAT did not go on to clarify what constituted ‘sufficient regularity’ and therefore there is still some uncertainty regarding this.
The Tribunal has limited scope to consider claims for a series of unlawful deductions as the chain will be broken where there is a gap in the payment of 3 months or more so this should protect most employers from facing large backdated claims for a series of unlawful deductions regarding holiday pay.
If in doubt as to what to include when calculating holiday pay, employers should seek legal advice.
How can we help?
If you are an employee and would like further guidance regarding your rights to holiday pay, please get in touch.
If you are employer and would like further advice about voluntary overtime and calculating holiday pay , please get in touch.
Note: This article first appeared on the Moray Employment Law website in September 2017.