Worker, ConstructionEmployers: EAT rules voluntary overtime SHOULD be included in holiday pay

You could certainly be forgiven if, as an employer, you are reading this and thinking the courts are against you! First, the Supreme Court quashed Employment Tribunal (ET) fees and now the Employment Appeal Tribunal (EAT) has held that voluntary overtime counts towards ‘normal remuneration’ for the purposes of calculating holiday pay.

What the EAT ruling means for employers

In summary, employers note that voluntary overtime must be included in holiday pay when overtime recurs to a point where it becomes ‘normal work’.

Background to holiday pay and current position

When calculating holiday pay for employees, it used to be that payment would be determined using ‘basic’ salary only, but in 2004 this was changed following the Bamsey case when guaranteed overtime was ruled to be included in these calculations.

Non-guaranteed and voluntary overtime remained excluded from calculations until 2014 following a number of ET claims, including Bear which challenged this position. It was held that non-guaranteed overtime should also be included when calculating holiday pay.

In 2016 White came before the ET. The 56 claimants – including plumbers, electricians and carpenters – worked for the local authority. They were offered work on Saturdays on a voluntary basis and elected to go on standby every four weeks to deal with emergency call-outs and repairs. The local authority paid holiday based on their basic contractual rate of pay. The ET ruled that as the overtime and standby had become part of their normal work, this should be reflected in their normal pay in the first 20 days of their annual leave (Regulation 13 Working Time Regulations 1998). This decision was not binding on other ETs.

Local authority appeal the ruling

The local authority appeal the decision and Dudley came before the EAT. It upheld the ET’s decision: voluntary overtime, where normally worked, is normal remuneration for the purposes of calculating holiday pay.

The local authority argued that overtime payments were not normal pay because they lacked a fundamental link to the performance of the tasks required under their employment contracts. The EAT rejected this interpretation. It held that excluding these payments from holiday pay has the effect of deterring employees from taking their holiday due to the financial disadvantage. Also, the EAT found that there was a clear link between the payments and the work being carried out when on overtime as the claimants were performing the same tasks as under their employment contracts.

What this means for employers

This is the first binding decision on the courts and tribunals of England and Wales on the point of voluntary overtime.

So, whilst it is up to ETs to determine whether overtime is sufficiently regular to be included in holiday pay on a case by case basis, the starting position now is that voluntary overtime must be included in holiday pay where the pattern of overtime continues for such a period of time so as to become ‘normal work’.

If you would like advice about how this decision could impact on you, please contact our experienced employment team.

Nicola, the author, is one of our employment law specialists who advises individuals and small and medium sized businesses.

Case references

Bamsey v Albion Engineering Ltd [2004] EWCA Civ 359, [2004] All ER (D) 482 (Mar)

Bear Scotland v Fulton (UKEATS/0047/13)

White v Dudley Metropolitan Borough Council [2016] 1300537/2015

Dudley Metropolitan Borough Council v Willetts ET/1300537/2015