Holiday pay and voluntary overtime

A recent case has clarified the position on whether voluntary overtime should be included for the purposes of calculating holiday pay.

In Dudley Metropolitan Borough Council v Willetts, the Employment Appeal Tribunal (EAT) confirmed that voluntary overtime should be included in the calculation.

The case involved individuals working as electricians, plumbers, roofers and in other similar roles. In addition to working hours during the day as provided for under their employment contracts, these individuals also worked voluntary overtime for which they were paid additional standby and call out allowances.

In calculating holiday pay, the council’s position was that the overtime payments were not ‘normal remuneration’ and should not be included in the calculation because they were not “intrinsically linked” to the performance of tasks required under the individual’s employment contracts.

The EAT did not agree with the Council’s interpretation and confirmed that excluding payments such as these from the calculation for holiday pay puts workers at a disadvantage which deters or could deter them from taking annual leave. In addition, the EAT found a clear link between the payments made to the individuals and their duties under their employment contracts as they were performing the same tasks as they were required to complete under their contracts.

The case confirmed that holiday pay must correspond to normal remuneration – pay which is normally received. The question to be asked is: What would the worker have earned if they had not taken leave?

The case has provided some much needed clarity to this area of law and will require employers to consider whether holiday pay represents what members of staff would receive if they had not taken annual leave. The uncertainty now is whether the Government intends to legislate to reverse the recent decisions on holiday pay once Brexit is complete.