The Employment Appeal Tribunal has confirmed that payments for undertaking additional work voluntarily (such as working overtime, being on-call and responding to call outs) should be included when calculating statutory minimum holiday pay, if it forms part of a worker’s “normal remuneration”.

The right to paid holiday in the UK is comprised of three separate elements:

  1. EU holiday: a minimum EU statutory entitlement to 4 weeks’ holiday (which applies equally across all EU member states);
  2. UK holiday: a further minimum UK statutory entitlement to an additional 1.6 weeks’ holiday (or 8 days); and
  3. Contractual holiday: an employer can (but is not obliged to) provide for additional holiday entitlement under the contract of employment.

These entitlements are for full-time workers and are pro-rated accordingly for those working part-time.

When calculating holiday pay, the starting point is that a worker should receive “a week’s pay for a week’s leave”. However, different rules apply to each of the three categories of holiday referred to above.

For the minimum EU entitlement, holiday pay must include not just a worker’s basic salary, but also anything else which comprises “normal remuneration”. The purpose behind this is that a worker may otherwise suffer a financial disadvantage that would deter them from taking annual leave – which goes against the fundamental principle of ensuring that workers use their holiday entitlement for rest and recuperation.

“Normal remuneration” includes payments that are either: (a) intrinsically linked to the performance of employment duties; or (b) relate to a worker’s personal or professional status (for example, payments due to seniority, length of service or qualifications). Previous cases have determined that it will cover sales-based commission and overtime which the worker is contractually obliged to undertake, if requested by the employer. Until now, it has been unclear whether “normal remuneration” might also include genuinely voluntary overtime.

In Dudley Metropolitan Borough Council v. Willetts & ors, holiday pay claims were brought by a number of council employees who worked in a variety of roles, including as electricians, plumbers, roofers, and “quick response operatives” (who carried out general repairs). They had a set number of contractual working hours per week. In addition, they volunteered (and were paid for) for additional duties outside their normal working hours. The employer had no right to force them to work overtime and they could drop on and off the rotas to suit themselves.

The dispute related to whether four types of payment should be included when calculating holiday pay: (i) out of hours/standby pay; (ii) call out allowances; (iii) additional voluntary overtime; and (iv) travel allowances.

The Employment Tribunal determined that each of these payments should be counted as “normal pay” and therefore included in holiday pay calculations. The council appealed to the EAT.

EAT decision

The EAT dismissed the appeal. It decided that in this case, although the payments were for additional voluntary work, they were intrinsically linked to the performance of employment duties and had been paid for a sufficient period to be considered “normal”.

Specifically, the EAT said the following:

  • The exclusion of payments for voluntary work which is normally undertaken would amount to an excessively narrow interpretation of “normal pay”. It would run the risk of employers fragmenting pay into different components to minimise levels of holiday pay. This, in turn, would discourage workers from taking their holiday.
  • Whether a particular payment is “normal” will depend on the facts. If a payment is made frequently or regularly, that is likely to be relevant because this suggests that it is a systemic component of remuneration.
  • In this case, once the employees were on-call or performing voluntary overtime, they were performing tasks required of them under their employment contracts and paid accordingly. Once the overtime shifts or standby periods began, they were in no different position from an employee who was required by his contract to work overtime, be on standby or attend call-outs.

Comment

This decision is not entirely unexpected and provides some welcome clarification to a notoriously complex area of employment law. Although the question of whether voluntary overtime counts as “normal pay” has previously been raised in a case in Northern Ireland, it was never considered fully by the court because the employer on that occasion, perhaps surprisingly, conceded the issue.

The EAT’s ruling does not mean that voluntary overtime will always be considered “normal pay” for holiday pay purposes. However, if in reality it is worked on more than just the odd occasion, the safest approach would be to include it in the relevant calculations.

It is also important to note that this decision only applies to a worker’s EU minimum holiday entitlement. The rules relating to additional UK minimum and contractual holiday are simpler. Save for one limited exception (where guaranteed overtime must be included in UK minimum holiday pay), the employer can (if it wishes), pay an amount equal to the employee’s basic salary only.

However, in our experience, many employers choose to calculate all types of holiday in the same way, to reduce administrative burden. This has meant either applying the rules relating to EU minimum entitlement across all categories of holiday, or adopting a “wait and see” approach in relation to voluntary overtime and paying basic salary only. Now that we have a clear ruling on voluntary overtime, this latter approach will be more difficult to sustain.