Voluntary overtime and the calculation of holiday pay
HOLIDAY PAY CALCULATION
The Working Time Regulations 1998 (SI 1998/1833) (WTR) provide a right for workers to receive 5.6 weeks’ paid annual leave, of which four weeks derives from the EU Working Time Directive and the remaining 1.6 weeks is domestic. Back in November 2014 the EAT held in Bear Scotland Ltd and others v Fulton and others 2014 (see Follow up ) that payment for compulsory, non-guaranteed overtime, i.e. overtime which the employer doesn’t have to provide but the worker must work if required, must be included in the calculation of holiday pay in respect of the four weeks’ annual leave provided by regulation 13 WTR , provided it’s sufficiently regular to qualify as “normal remuneration” . However, until now, there has been no binding court decision on the position of voluntary overtime, i.e. overtime which the employer doesn’t have to provide.
VOLUNTARY OVERTIME
In Dudley Metropolitan Borough Council v Willetts and others 2017 (see Follow up ), the Employment Appeal Tribunal (EAT) upheld the decision of the employment tribunal and ruled that payment for voluntary overtime that’s normally worked should be included in the calculation of holiday pay for the four weeks of annual leave provided by regulation 13 , regardless of the fact that there’s no contractual obligation on workers to accept the offer of it. It held that holiday pay must correspond to “ normal remuneration” and it then decided that voluntary overtime pay should be included if it’s been paid over a sufficient period of time on a regular and/or recurring basis. The EAT also held that out-of-hours voluntary standby and call-out payments should be included in the holiday pay calculation. Importantly, it concluded that a payment is sufficiently regular if it’s paid for one week in each month or for one week in every five weeks; there’s no requirement for the payment to be made in each week to be normal.
Pro advice 1. Voluntary overtime which is not usually paid or which is exceptional or unusual can be excluded from the holiday pay calculation.
Pro advice 2. You should now consider taking voluntary overtime payments into account when calculating workers’ holiday pay, but first objectively assess, as a factual matter, whether the payments are regular or recurring over a sufficient period of time to justify the description “normal remuneration” . This should be done on a case-by-case basis.
Pro advice 3. The judgment applies only to the four weeks’ annual leave under regulation 13 and not to the additional 1.6 weeks under regulation 13A . However, in practice it might be difficult for your payroll system to differentiate between the two.
INTRINSIC LINK NOT REQUIRED
Earlier case law has also focused on whether there’s an “intrinsic link” between the particular payment and the performance of tasks which the worker is required to carry out under their employment contract. The EAT held that it was wrong to do so. It thought that an intrinsic link is just one way of establishing that pay should be counted as “normal remuneration” , but it’s not the only, or the only decisive, criterion. In any event, the link was present here because, once a worker started working a shift of voluntary overtime, they were performing tasks required by their employment contract.
Bear Scotland Ltd and others v Fulton and others 2014
Dudley Metropolitan Borough Council v Willetts 2017
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