In Dudley Metropolitan Borough Council v Willetts, the EAT has made clear that payments for non-compulsory overtime and standby/call-out allowances should be taken into account when calculating holiday pay if such payments are regularly made.

This case was brought by 56 employees of Dudley Metropolitan Council. Their contracts contained normal working hours and did not require them to undertake overtime or to be on call. Their holiday pay was calculated only with reference to their contractual hours. The Council employees arguedthat their holiday pay should also reflect the payments they regularly received for overtime, standby shifts and mileage allowances.

The tribunal upheld their claims and the EAT agreed. It should be noted that this decision relates only to “Euro” or “Regulation 13” leave; that is, the four weeks’ annual leave afforded by the Working Time Directive. It does not relate to the additional 1.6 weeks’ leave entitlement under UK law.

The EAT noted the “overarching principle” (set out by the ECJ in Williams and others v British Airways plc [2011] IRLR 948) that workers should not lose out financially when they are on annual leave and so be deterred from taking holiday. In accordance with this principle, workers should receive “normal remuneration” during holidays so that there is no disincentive to take leave. Following Williams, normal remuneration includes basic salary as well as remuneration which is “intrinsically linked to the performance of the tasks which [the employee] is required to carry out under his contract of employment”.

In Willetts, the EAT further clarified that a payment will be “normal” if it is “paid over a sufficient period of time” and stated that this will be a question of fact and degree for the tribunal. The EAT explained that: “Items which are not usually paid or are exceptional do not count for these purposes. But items that are usually paid and regular across time may do so.”

The EAT held that voluntary elements of pay (for example overtime which need not be accepted by the worker when offered) should not be treated any differently to compulsory elements. It commented that treating such payments differently could lead to employers trying to minimise holiday pay by reducing contractual hours and increasing voluntary overtime hours. The Council’ s argument that the payments for voluntary overtime could not be normal remuneration because overtime was not required by the employment contracts was rejected by the EAT. It clarified that the payments were still intrinsically linked to the performance of tasks required under the contract of employment even though there was no contractual requirement to do overtime.

The EAT also upheld the decision of the tribunal that the element of mileage allowance which was above the HMRC approved rate (and so taxed as a benefit in kind) should also count towards holiday pay.

Case law in this area shows an increasingly consistent approach to the question of what will constitute normal remuneration for the purpose of calculating holiday pay. If payments are linked to tasks required in the employment contract and if they are paid on a regular basis, those payments should be included in the holiday pay calculation. There is still some uncertainty as to how often a payment needs to be made before it becomes “regular”. Mrs Justice Simler commented in this case that she saw no difficulty in deciding that a payment made on one week in each month or one week in every five weeks would be sufficiently “regular”.