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Inclusion of Voluntary Overtime in Holiday Pay


Inclusion of Voluntary Overtime in Holiday Pay

In a landmark decision by the Employment Appeal Tribunal (EAT) in the case of Dudley Metropolitan Borough Council v Willetts and others, it was held that regular voluntary overtime should be included when calculating holiday pay.

The claimants in this case were a group of employees who worked for Dudley Metropolitan Borough Council. In addition to their set hours, the group of employees all agreed to perform additional hours on a purely voluntary basis. This included out-of-hours on-call shifts, responding to call-outs and voluntary overtime. The employees were completely free to accept or decline these shifts and the employer had no right to force them to work the extra time. Therefore it was accepted that these extra shifts were entirely voluntary overtime, and not compulsory.

Decision

There is previous case law (British Airways plc v Williams and others and Lock v British Gas Trading Ltd) which stated that overtime which is intrinsically linked to the employee’s performance of tasks would be compulsory and therefore should be included in an employee’s normal pay. It was indicated in these cases that voluntary overtime was not intrinsically linked to the performance of tasks as employees could freely turn it down. However, the EAT found in this case that the non-inclusion of voluntary overtime within holiday pay was an ‘excessively narrow interpretation’ of normal remuneration and consequently it should be included.

The EAT determined that as soon as the employees commenced working these overtime shifts, there was no difference between someone who was working the shift as voluntary overtime or someone who was working it as compulsory overtime. Therefore, if an employee working it as compulsory overtime received inclusion of this time in their holiday pay, an employee working it as voluntary overtime should thus be treated the same. As these extra voluntary shifts were worked on a fairly regular basis, it was determined that the payment of them were included in the employees’ normal pay (which was defined in Bear Scotland Ltd v Fulton and another as being pay ‘normally received’). As such, voluntary overtime should only be included when it is worked on a regular basis to form part of an employee’s normal pay. However, there is no definition given of what would count as being ‘regular’. As a result, it is left for tribunals to determine on a case by case basis.

What now?

As this is the first binding appellate decision on entirely voluntary overtime, the impact of this case is quite significant. All regular voluntary overtime should now be included in the determination of holiday pay for employees. Employers who currently do not take this into account should amend their procedure on this; otherwise there is a possibility that they will face legal action against them for underpayment of holiday pay.

However, this will not open up the ability for employees to make retrospective claims for an underpayment of holiday pay. An employee can only claim for a series of underpaid holiday pay where no more than three months have passed between underpayments. Additionally, any claim would have to be brought within three months of the date of the last underpayment of holiday pay for the claim to be valid. However, since the Bear Scotland decision, regulations were introduced stating that there is a cap for retrospective claims for underpaid holiday pay of two years. Therefore no claim older than two years can be brought, unless proceedings had already been raised prior to 1st July 2015..

Examples: It is currently August 2017 and an employer has not been including voluntary overtime in the calculation of employee A’s holiday pay since January 2015. Presuming that employee A was entitled to holiday pay most months, he could make a claim for underpayment of holiday pay for the past two years, but could not go any further back than August 2015. The claim would have to be lodged with the tribunal by November 2017.

Employers should therefore be aware that there is a potential for claims to be brought against them with regards to the underpayment of holiday pay. It is suggested that procedures for calculating holiday pay are changed to be in compliance with this development in the law. However, if an employer is made aware of any future claim, legal advice should be sought as soon as practicable. 

If you have any questions about overtime and calculating holiday pay for employees, or any other employment query, please contact a member of our specialist Employment Law team  on 03330 430350.

Blog by Katy Williams, Trainee Solicitor, Employment Law.

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