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Voluntary overtime must be included in holiday pay

Important news for employers, that could have a significant impact on staff costs.
Any employer that makes regular payments for voluntary staff overtime, needs to be aware of this recent Employment Appeal Tribunal decision.
It was settled by previous cases that guaranteed overtime must be included when calculating pay for holiday that entitlement which derives from the EU Working Time Directive (namely, 4 weeks which is pro-rated for those not working fulltime).  However, in Dudley Metropolitan Borough Council v Willetts and others, the Employment Appeal Tribunal (“EAT”) has upheld a tribunal’s decision that payments for that voluntary overtime (if regularly worked) must also be taken into account when calculating that holiday pay.
Background
A group of 56 employees, employed by the council to carry out housing repairs, were contracted to work 37 hours per week. However, they could also volunteer for additional duties if the employees so chose. The council had no right to insist that the employees undertook these additional duties thereby clearly demonstrating a voluntary overtime arrangement.
The employees argued that their holiday pay should also reflect this voluntary/optional overtime and any “allowance” payments such as travel allowances, call-out allowances or standby allowances.
Key facts
Under the EU Working Time Directive, holiday pay must be calculated having reference to that which is ‘normal remuneration’. The question for the tribunal was whether voluntary overtime and the various allowances should be treated as “normal remuneration”.
The tribunal acknowledged that the additional payments arose by virtue of voluntary participation in rotas, and that it was ‘sailing into uncharted waters’ on the issue of purely voluntary overtime.
It also noted that a worker who regularly received additional payments such as standby allowances might be deterred from taking leave if those  payments were not included in holiday pay.
The tribunal had concluded (based on the present facts presented to them) that the payments for voluntary overtime, and the various allowances (with the exception of the travel allowance) were made with sufficient regularity for them to be deemed “normal remuneration. The council appealed the decision.
Appeal ruling
The EAT dismissed the appeal.
It noted that the European Court of Justice had set down the principle that holiday pay should correspond to ‘normal remuneration’. This was to ensure that workers were not discouraged from taking leave; and that the division of pay into different components or elements cannot affect a worker’s right in this regard.
For a payment to count as ‘normal’, it must have been paid over a (subjectively) sufficient period. Although exceptional items and payments do not count for these purposes the EAT held that, if payments for voluntary shifts, standby or call out payments are normally paid, they must be included in pay for holiday leave to ensure that there is no financial disadvantage as a result of taking such leave, irrespective of the source of the obligation to perform the work in question.
In this instance, the payments subject to the appeal were deemed to amount to “normal remuneration” and should therefore be factored into the holiday pay calculations for that holiday entitlement deriving from the EU Working Time Directive.
In simple terms this means that, where employers operate ‘optional’ duties arrangements in respect of which payments or allowances are paid, careful thought must be given to whether these payments should be factored into holiday payment calculations.
For advice on this and other employment law issues, call us today on 0800 088 6004.