The issue of calculating holiday pay continues. In the recent case of Dudley Metropolitan Borough Council v Willetts and Others, the Employment Appeal Tribunal (EAT) decided that the calculation of holiday pay must include payments for voluntary overtime where these form part of the worker’s normal remuneration.

Legal background

Under the Working Time Regulations, workers are entitled to 5.6 weeks of statutory holiday. The 5.6 weeks of statutory holiday must be paid at the rate of a week’s pay defined within the Employment Rights Act 1996.

Recent case law has established that a week’s pay should include compulsory, guaranteed and non-guaranteed overtime as well as commission payments which form part of a worker’s ‘normal remuneration’.

Case background

Mr Willetts and his colleagues were employed by Dudley Metropolitan Borough Council (DMBC) in a number of different roles including electricians, plumbers, roofers, storeman and operations officers. The employees have set contractual hours which represent their normal working hours. In addition the employees volunteer to perform additional duties which are outside of their contractual requirements. This is entirely voluntary and the Employment Tribunal held that this additional work was ‘almost entirely at the whim of the employee, with no right to enforce work on the part of the employer.’

DMBC calculated holiday pay based on basic pay only. DMBC excluded the additional payment for voluntary overtime from the calculation of holiday pay. Mr Willetts and his colleagues claimed that their holiday pay should take into account out-of-hours stand-by pay, call out allowance, voluntary overtime and mileage or travel allowance and brought a claim in the Employment Tribunal.

The Employment Tribunal held that these payments should be included in calculation of holiday pay.

DMBC appealed to the EAT.

The EAT upheld the Employment Tribunal’s decision. It held that work that was performed on a voluntary basis could be included in normal remuneration for calculating holiday pay. It stated that:

‘for the payment to count as ‘normal’, it must have been paid over a sufficient period of time. This will be a question of fact and degree. Items which are not usually paid or are exceptional do not count for these purposes. But items that are usually and regular across time may do so.’

Accordingly, the frequency and regularity of voluntary overtime would be relevant in deciding whether or not it should be included in calculating holiday pay.

It is important that employers undertake a review to ensure that holiday pay is being appropriately calculated. Previous case law has established that commission and contractual overtime should be included.

In light of this case employers now need to take into account whether voluntary overtime should be included in the calculation of holiday pay.