Every employee has the right to a minimum of four weeks' paid annual leave.

Whilst the UK has added an extra 1.8 weeks' leave as an additional minimum entitlement (i.e. 28 days for a full-time employee, which can include public and bank holidays), the four weeks’ paid annual leave is one of the cornerstones of EU law.  The concept is simple, but it has led to some of the most complex practical problems encountered in employment law.

There has been a series of UK holiday pay judgments in recent years which help us understand what the entitlement means in financial terms.

The principle that has emerged from the recent UK case law (implementing the Court of Justice of the EU’s rulings) is that where an employee is in regular receipt of additional payments that have thereby become “normal” remuneration, such as overtime and commission, then the employer should not simply pay basic salary to the employee when they are on annual leave but instead for the first four weeks of annual leave the employer should pay basic pay plus an additional sum, which is the average of these additional payments for the twelve weeks’ prior to the first day of annual leave.

As yet, there is no precise test for establishing whether such additional payments qualify as “normal” remuneration but the case law indicates that additional payments will qualify if:

  1. They have a “degree of permanence” (i.e. have been paid regularly) and;
  2. They are “intrinsically linked” to the performance of the contract of employment by the employee.

Whilst some of these decisions are being appealed, it is unlikely that these principles will be altered to any great degree.

The logic behind this is that to only pay basic pay whilst on annual leave to such employees would perhaps deter them from taking their paid annual leave at all because their “normal” take home pay would drop whilst on annual leave.

The argument has been made by some employers that if an employee carries out “voluntary” overtime, then even if it is on a regular basis, because it is voluntary, such payments should not count towards the additional holiday pay payments required. 

That did not seem to us the most secure argument and now in White & Others v Dudley Metropolitan Borough Council [2016] 1300537/2015 the Midlands West Employment Tribunal has ruled that in calculating the amount of holiday pay, an employer must include payments for voluntary overtime, voluntary standby and voluntary call out payments, provided that the work has been undertaken with sufficient regularity to have become part of the employee’s normal pay.

Whilst this is only an Employment Tribunal judgment, it may well influence courts at a higher level. The case law to date stresses only two factors “degree of permanence” and “intrinsically linked” and the appeal courts have not yet considered whether such payments are truly voluntary or not. This would be a debate that would be hard to resolve in many instances. If a busy employer needs an employee to stay on to complete urgent work for a deadline, is the “voluntary” overtime truly voluntary?

This debate has gone back through the case law and in particular arguments have been made that “truly voluntary” overtime should not be caught by the holiday pay additional payments principle. However, in the case of Lock v British Gas Trading [ 2014 ] ICR 813 Langstaff J discouraged this line of argument.

My view has always been that whilst the option of taking overtime may be voluntary, once such was offered and accepted an obligation to carry out the overtime arose, even if no such obligation existed before. As such, the “voluntary” element becomes meaningless.