The Employment Appeal Tribunal (EAT) has confirmed that voluntary overtime payments should be taken into account when calculating holiday pay if they are regular enough to constitute “normal pay”.

In the first binding decision on this point, the EAT upheld the Employment Tribunal’s judgment in the case of Brettle and Others v Dudley Metropolitan Borough Council, which marked a further development in the evolution of case law surrounding the correct basis for calculating a worker’s entitlement to holiday pay.

In Brettle, Birmingham West Employment Tribunal determined that workers who worked regular overtime on a voluntary basis should have that reflected in their holiday pay. It was also decided that payments in respect of standby and call-out should be considered “normal pay” and so should be incorporated into holiday pay if such additional hours worked on a voluntary basis are done so with “sufficient regularity”.

The claimants were tradesmen employed by the council to repair and maintain Dudley’s housing stock. They had fixed contractual hours of work and worked overtime on a voluntary basis. They were also voluntary participants in standby and call-out rotas relating to out-of-hours emergency work. That voluntary overtime was paid and was also subject to a mileage allowance. However, the council based the calculation of the claimants’ holiday pay on contractual hours alone, exclusive of any payments made in respect of voluntary overtime, standby, call out and mileage allowance. The claimants’ argument at tribunal was that their holiday pay should have reflected these additional payments.

Following review of the relevant case law to date, the Tribunal concluded that payment to the tradesmen in respect of the additional hours worked had been made with sufficient regularity to mean they should be considered as normal remuneration when calculating holiday pay for the four weeks’ paid leave provided for under the European Working Time Directive (important to note here that the various decisions on holiday pay do not apply to the additional 1.6 weeks’ leave provided under the Working Time Regulations 1998, or any contractual holiday employers may provide in excess of that).

Despite this decision, the situation in relation to voluntary overtime (i.e. overtime the worker is not required to do but may accept if offered) was still not clear cut. In 2012, an Employment Tribunal determined in the case of Neal v Freightliner Ltd that payment received by a worker during a period of voluntary overtime should be included when calculating holiday pay on the basis that he performed tasks required under his/her contract during that time, meaning that they were “intrinsically linked” to the performance of his contractual duties. However, the decision was appealed and then settled before being heard by the EAT. Then in the 2015 case of Patterson v Castlereagh Borough Council, the Northern Ireland Court of Appeal similarly concluded that voluntary overtime should be included in the calculation, although it was at pains to stress that such a decision would be a ‘question of fact’ for each tribunal to determine. The Brettle decision, although not binding at that stage, lent further weight to the argument that if voluntary overtime is regularly worked over a sufficient period of time, it should be treated as part of the worker’s normal remuneration and therefore included in holiday pay calculations. Now that the EAT has endorsed that decision, it constitutes the first binding decision on this point in the courts and tribunals of England and Wales. However, the EAT did make the point that each case will turn on its own facts, and so individual tribunals must determine whether or not the overtime payments are sufficiently “regular and settled” to warrant their inclusion in holiday pay.

Chris Nagel, EML’s Director and Head of HR, comments…

 

“Now we finally have a binding decision on voluntary overtime, it would be prudent for employers to take immediate action to mitigate liabilities by introducing changes to the calculation of holiday pay that provide for the inclusion of any voluntary overtime payments that are sufficiently regular to be considered part of normal pay.”

 

If you have any queries on this matter, or require any other employment law advice, please do not hesitate to contact one of our HR Consultants on 01942 727200.