In our Spring edition of Motor Matters we looked at the calculation of statutory holiday pay and whether it should include results-based commission entitlements. Continuing in that theme, the Employment Appeal Tribunal (EAT) has recently considered whether statutory holiday pay should be calculated to include voluntary overtime.

A worker’s annual holiday entitlement, under the Working Time Directive (2003/88/EC), should be paid according to their ‘normal remuneration’. This is to ensure that a worker suffers no financial disadvantage and is, therefore, not discouraged from taking their entitled leave. Various cases have dealt with the question of what amounts to ‘normal remuneration’, and whether it includes additional payments such as commission, allowances and overtime pay. It has already been established by domestic and European courts that compulsory contractual overtime, (whether guaranteed or non-guaranteed) and commission, should be included in the calculation, but what about overtime that is entirely voluntary?

Dudley Metropolitan Borough Council v Willetts and others

A group of 56 council workers engaged in housing repairs each worked set contractual hours and worked additional hours on an entirely voluntary basis. They claimed that their holiday pay should be calculated to include voluntary overtime, call-out payments and other allowances linked to the overtime. A tribunal concluded that these payments were paid in such a manner, and with sufficient regularity, to be considered part of the claimants’ ‘normal remuneration’. As such, they should be included in the calculation of the statutory holiday pay for the four weeks of leave required by the Working Time Directive.

The EAT upheld the tribunal’s decision, and considered that the exclusion, as a matter of principle of payments for voluntary overtime work, would amount to an excessively narrow interpretation of ‘normal remuneration’.

What does this mean for employers?

This is the first appellate decision to confirm that statutory holiday pay should be calculated to include entirely voluntary overtime, provided the overtime is worked with sufficient regularity. The decision will, therefore, be binding on employment tribunals deciding cases concerning the calculation of statutory holiday pay.

The difficult question to determine is exactly how regularly overtime must be worked in order for it to be included in the calculation? The EAT said that it is a matter of “fact and degree” to be decided on the facts of each case. Employers will need to assess what might be appropriate for their staff depending on how frequently, in practice, they work voluntary overtime. If overtime is only worked to meet a very short-term peak in demand, and the individual takes holiday outside that period, it is certainly arguable that the overtime is not sufficiently regular to be included and, crucially, the individual has not been subjected to any financial disadvantage for taking the holiday.

Employers that have not already done so should review their current arrangements for the calculation of holiday pay, and decide on a suitable strategy to account for voluntary, as well as compulsory, overtime.