Workers who regularly undertake voluntary overtime beyond their contracted hours may be eligible for more holiday pay. A recent ruling means that businesses should be reviewing their current holiday pay practices and considering budgeting for, and adjusting, the calculation of holiday pay to include relevant voluntary payments.

Background

The Employment Tribunal (ET) in White & Others v Dudley Metropolitan Borough Council ruled that voluntary overtime (and voluntary standby and voluntary call-out) payments should be considered “normal pay” when undertaken with “sufficient regularity”, meaning that they should be included when calculating holiday pay.

In this case, the claimants had worked overtime and performed call-out duties for a number of years and so payment for this voluntary work became part of normal, expected pay. It was decided that these additional payments should therefore be included in the calculation of holiday pay in respect of the four weeks of annual leave arising under EU law. The additional payments did not have to be included in respect of the additional eight days' annual leave arising under UK law, nor in any additional contractual entitlement in excess of this.

We have known since Bear Scotland Ltd & Ors v Fulton & Ors that the first four weeks of annual leave should include non-guaranteed overtime. This covers situations where workers are under an obligation to do the overtime. What was not clear, because the issue did not arise in Bear Scotland, was whether it should also include purely voluntary pay. This covers situations where workers can pick and choose whether they want to work the overtime.

Last year, the Northern Ireland Court of Appeal in Patterson v Castlereagh Borough Council held that voluntary overtime should be included when calculating holiday pay. This decision was not binding, only persuasive, on English courts. The ET in White, the first English case on this point, appears to have been persuaded.

What is “regular”?

In determining whether voluntary overtime should be included in holiday pay, the ET stated that the question to ask was whether the overtime had been undertaken with “sufficient regularity” to become part of the worker's normal work and, therefore, the worker’s normal pay. If so, it should be included. The claimants in this case had all worked voluntary overtime for many years and so all qualified. If someone worked it only once or twice, it would clearly not be regular for that person. There is a grey area in between and further guidance from the courts will be required and welcomed. The barrister representing the claimants in this case has indicated a view that “one day per quarter” should be sufficient to be classified as “regular” but working voluntary overtime once or twice a year, for example, would not be sufficient.

What does this mean for businesses?

The decision is an important one, given that voluntary overtime is the most common form of overtime in the majority of sectors. Those businesses that do not include voluntary overtime, standby or call-out payments in their workers’ holiday pay calculations may consider adjusting their calculations to include such payments where they have become part of a worker’s normal work and pay. However, this was a first-instance decision and so is not binding on other tribunals. It is also not yet known whether this decision may be appealed, which could provide greater clarity from the higher courts.

Back in February, the Employment Appeal Tribunal (EAT) held in Lock v British Gasthat commission and similar payments should be included in holiday pay. The EAT decided that there was no basis upon which commission and overtime should be treated differently. British Gas has appealed this decision and the Court of Appeal hearing is due to take place on 11 or 12 July 2016.