3rd August 2017

The Employment Appeal Tribunal (EAT) has handed down the latest in a long line of cases regarding the thorny issue of holiday pay.

Recent cases have clarified that compulsory and non-guaranteed overtime (over time that must be worked where required) must be treated as ‘normal remuneration’ when calculating holiday pay under the Working Time Regulations.   Employers and employment lawyers alike have however been battling the largely unanswered question about how to treat voluntary overtime.

The EAT has given an significant ruling in the case of Dudley Metropolitan Borough Council -v- Willetts, which considered various types of overtime performed by on-call tradesmen.

The issue in the case was whether the pattern of voluntary overtime, extending over a sufficient period of time, justified the description of ‘normal’ when considering ‘normal remuneration’ for holiday pay.   The EAT held that on the facts of this case, the voluntary overtime, which was of the same nature as the work done under the substantive contract, was sufficiently regular that it should be included in holiday pay calculations.  To do otherwise could serve to deter people from taking annual leave.

The EAT did not go so far as to say that all voluntary overtime must be included; rather they held that it will be for Employment Tribunals to determine whether the voluntary overtime meets the ‘normal remuneration’ threshold.  That said, if any overtime is performed with any regularity it is likely to qualify.   In considering reference periods, the EAT endorsed the 12-week period suggested in this case.

Finally, to add to the confusion in payroll, as this Judgment relates to the Working Time Directive element of holiday pay, the enhancement will only apply to the first 4 weeks of any worker’s annual leave.

What do you need to do?

This Judgement will affect any employer who has employees who are paid for overtime.   Employers will need to establish a workable reference period to calculate holiday pay so as to ensure that those who are heading off on holiday are paid the right rate.

If you would like to discuss the issues arising from this case, please contact the team on 0161 437 0013 or by email at info@lawbydesign.co.uk