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Case law: Holiday pay rule for overtime and other voluntary work clarified by Employment Appeal Tribunal

Employers should ensure they are clear which payments to employees for voluntary work – for instance, overtime or standby payments – qualify as ‘normal remuneration’ and must be counted when calculating holiday pay, following a significant ruling in the Employment Appeal Tribunal.

September 2017

This update was published in Legal Alert - September 2017

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

Union members were employed as maintenance staff, maintaining and repairing their employer’s housing stock. They regularly worked voluntary overtime, including Saturdays. They had also chosen to join a standby rota, making themselves available out of normal hours to deal with emergency call-outs every four weeks.

They claimed that their voluntary overtime, standby pay, a call out allowance, and related travelling expenses should be taken into account when calculating their holiday pay, on the basis that this was ‘normal remuneration’.

The employer argued that the standby and other payments did not have the necessary intrinsic link to the work they were required to do under their contracts of employment, and did not therefore count as part of their normal remuneration. Previous rulings had suggested such an intrinsic link was necessary before payments could be classified as normal remuneration for these purposes.

The Employment Appeal Tribunal (EAT) found in favour of the employees. It said the underlying reason for the holiday pay rules was to ensure that holiday pay should correspond to normal remuneration received while not on holiday, so there is no financial disadvantage to taking a holiday.

It ruled that where patterns of work – albeit voluntary – prevail over a sufficient period of time, and on a ‘regular and/or recurring basis’, they can be ‘normal’ so that pay normally received for that work should be included when calculating holiday pay.

It is for the Employment Tribunal in each case to decide whether pay for voluntary work, such as overtime, is sufficiently longstanding and regular to qualify as normal remuneration. This will usually depend on the regularity and frequency of the voluntary work.

The EAT also said that payments intrinsically linked to the work employees are required to do under their contracts of employment will always be normal remuneration, but the fact there is no intrinsic link does not automatically mean a payment is not normal remuneration. Having said that, the EAT did find an intrinsic link between the voluntary work and the employees’ contractual work in this case, as the employees were doing the same work when on overtime or roster duties as during their normal working hours.

The EAT also seemed to approve using a 12-week reference period when calculating holiday pay.

The ruling only applies to the four weeks’ annual leave required under EU law (not to the extra 1.6 weeks’ holiday added by UK law, or any contractual holiday entitlement).

Operative date

  • Now

Recommendation

  • Employers should ensure they are clear which payments to employees for voluntary work – whether overtime, standby payments, or other such payments – qualify as ‘normal remuneration’ and should therefore be counted when calculating holiday pay

Case ref: Dudley Metropolitan Borough Council v Willetts & Ors (Working Time Regulations) [2017] UKEAT 0334_16_3107

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.