Can Voluntary Overtime Count Towards Holiday Pay?

...towards the calculation of holiday pay if they form part of a worker's 'normal remuneration'.

However, the issue of genuinely voluntary overtime had not been settled. Could such work ever form part of a worker's 'normal remuneration'?

In Dudley Metropolitan Borough Council v Willetts the Employment Appeal Tribunal (EAT) has determined that it can.

The Problem with Holiday Pay

Traditionally, holiday pay in the UK has been calculated by reference to complicated statutory provisions that determine what a week's pay should be. In particular, a week's pay for those with normal working hours has focused on their basic pay, excluding commission, bonus, overtime and allowances.

This approach does not fit with the requirements set out in Article 7 of the Working Time Directive. Under Article 7, workers must be paid their 'normal remuneration' whilst on holiday. This might well include commission, bonuses etc. in addition to basic pay. As a result, the UK's traditional approach has been challenged.

It should be noted that the challenge relates to the four weeks' holiday required under European legislation. The extra 1.6 weeks' holiday the UK government grants in our domestic law can still be paid in the traditional way if employer's so choose.

Voluntary Overtime

Past cases have stressed the need for a link between overtime payments and the tasks the worker "is required to carry out under his or her contract of employment". This left open the possibility that genuinely voluntary overtime would fall outside the scope of holiday pay altogether because of a lack of any contractual requirement to carry out the work.

The EAT's Decision

It has now been confirmed that if voluntary overtime is worked for a sufficient period of time on a regular and/or recurring basis so as to justify the description as 'normal', it should be taken into account when calculating holiday pay.

When considering the issue of what is 'normal', the judgment refers to working patterns being 'sufficiently regular' and 'settled'.

On the facts in the Dudley case, pay and call-out allowances received for regularly working an overtime rota one week in four or one week in five were considered normal remuneration, as was additional voluntary overtime which was not unusual or rare, but regular.

Next Steps for Employers

• Identify any workers or groups of workers who have normal working hours in their contract but whose pay varies on account of overtime, allowances or commission.
• In respect of each worker or group, identify whether their working patterns are sufficiently settled or regular to be described as 'normal'.
• If so, does their holiday pay reflect their basic pay, or the normal remuneration they receive?
• If there is a risk that holiday pay may need to be adjusted, consider:
  
  -  What the potential cost might be;
  -  What reference period you would need to use to determine normal remuneration;
  -  Whether pensionable pay will be affected;
  -  Whether any workers will fall within the scope of auto-enrolment;
  -  Whether it is practical to differentiate between the four weeks' holiday affected by this decision and the extra 1.6 weeks provided by the UK which are not;
  -  Whether working patterns and voluntary arrangements can be altered to limit any potential liability into the future.

For further information please contact Michael Halsey in our Employment Law team on 020 7665 0842.