Voluntary overtime to be included in holiday pay calculation

11 August 2017

Regular voluntary overtime beyond employees contracted hours will now have to be included in the holiday pay calculation. This decision could have huge implications for UK businesses and will benefit thousands of workers.

The Employment Appeals Tribunal (EAT) ruled that in relation to Dudley Metropolitan Borough Council v Willets and others, that voluntary overtime worked for a sufficient period on a reoccurring basis should be included in the first four weeks’ paid holiday.

Holiday pay claims were brought against the Council by a group of 56 employees responsible for the repair and maintenance of council houses. Their set number of hours per week (usually 37 hours) were classed as their normal working hours. However, along with their normal working hours, they were also on a call register and worked additional voluntary hours, one in every four or five weeks. Nevertheless, these voluntary payments were not reflected in their holiday pay and employees argued that this wasn’t compliant with the Working Time Regulations 1988 (‘WTR’).

Their claims were initially successful at the Employment Tribunal which led the Council to appeal to the EAT on the basis that purely voluntary overtime should be treated differently from compulsory overtime workers were obliged to perform.  

This is the first occasion the EAT has heard cases relating to purely voluntary overtime. They stated that workers should receive their ‘normal remuneration’ when they take holiday. Furthermore, workers should not be deterred from exercising their rights to take paid annual leave due to a financial disadvantage. Therefore, employers should reconsider how they calculate holiday pay and what pay is taken into consideration to remain compliant.

See our news item on the initial hearing at the Employment Tribunal here.

Based on a number of holiday pay rulings, it is important for employers to analyse how many employees are paid overtime or commission payments and to calculate the financial implications of including this element of commission in the holiday pay calculation and to introduce this new calculation to their HR practices.

The Deduction from Wages (Limitation) Regulations 2014 came into force on the 8th January 2015 which does limit all unlawful deductions claims to two years before the date the claim is lodged with an Employment Tribunal. This protects employers somewhat, as the period that a claim can cover, if an employer fails to pay the appropriate levels of holiday pay in accordance with the requirements of the WTR, will be limited to a maximum of two years.