The Employment Appeals Tribunal (EAT) has handed down its latest judgment dealing with holiday pay litigation which provides clarification of the correct treatment of holiday pay for employees who work voluntary overtime.
The case, Dudley Metropolitan Borough Council v Willetts (and others), means that employers must now incorporate regular voluntary overtime when calculating holiday pay.
Voluntary overtime is defined in law as work an employee can refuse and which the employer is not obliged to offer.
The case against Dudley council involved 56 employees who had set contractual hours, but in addition worked overtime on a purely voluntary basis.
Some employees also volunteered to go on a standby rota every four weeks to deal with emergency call-outs and repairs.
These employees were paid a standby allowance for the time they were on call and a call-out payment if they were actually required to attend a call-out.
The employees argued that their statutory holiday pay should include voluntary overtime, out-of-hours standby pay, call-out payments and mileage allowances which were paid for work-related travel.
The EAT agreed with the employees and found that regular payment of voluntary overtime, on-call allowances and out-of-hours payments must be taken into account when calculating holiday pay.
This is so that the employees received what they normally would have earned if they had not taken leave.
The overarching principle behind this and related cases is that employees on holiday should receive pay they would normally receive when they are working, otherwise they are discouraged from taking their leave.
The key factor when deciding whether the voluntary overtime payment forms part of ‘normal pay’ is whether it was received regularly and consistently.
The EAT did not provide judicial guidance as to the frequency of payments or the appropriate reference period.
However, it is likely that in most cases a 12-week reference period could be used to calculate average pay where an employee has normally worked voluntary overtime but in an irregular pattern.
In the Dudley case, payments made one week in five counted as ‘normal pay’.
This decision only applies to the four weeks’ annual leave that employees are entitled to under the Working Time Directive and not the additional 1.6 week’s leave under the Working Time Regulations.
n Graysons’ employment law team helps you stand out from the crowd, attracting the top people, ensuring that you comply with regulations and that your policies and procedures are up to date.