News Updates

Voluntary overtime payments included in holiday pay

Friday 11th August 2017

The EAT has upheld the ET’s decision in Dudley Metropolitan Borough Council v Willets and ors in relation to the inclusion of voluntary overtime pay in the calculation of holiday pay during the 4 weeks of leave derived from EU law.

The 5 lead claimants formed part of a group of 56 employees working for Dudley MBC in various roles relating to housing repairs. They had set contractual hours and volunteered for additional out of hours work, which the ET found was undertaken “almost entirely at the whim of the employee”. The employees alleged that their holiday pay should take into account the various payments they received as a result of this extra work they volunteered for.

European case law provides that holiday pay should correspond to normal remuneration, so workers are not discouraged from taking annual leave. The ET, having regard to this principle, determined that the payments were made with sufficient regularity that they were part of the employees’ normal remuneration. As such, holiday pay should reflect them. However, the ET recognised it was “sailing into unchartered waters”. Dudley MBC appealed.

The EAT upheld the ET’s decision, noting that whether a payment is “normal” will be fact specific. To qualify, it must have been made over a sufficient period of time and not be an exceptional or one-off payment. An intrinsic link between a payment and the performance of task under a contract was decisive. The EAT went on to say that the absence of an intrinsic link did not, in its view, automatically exclude a payment from normal remuneration. However, if an intrinsic link was a prerequisite, the EAT stated the requirement was satisfied on the facts of this case, as once the voluntary shifts began, the employees were no different to an employee who was contractually required to work overtime.

The decision does not apply to additional UK holiday entitlement of 1.6 weeks.

All information in this update is intended for general guidance only and is not intended to be comprehensive, or to provide legal advice.