Calculation of Holiday Pay for Voluntary Overtime

We recently reported on the decision of the Employment Appeal Tribunal (EAT) in Bear Scotland Limited and Others v Fulton and Others that Article 7 of the EU Working Time Directive (WTD) should be interpreted so that payments for overtime which employees are required to work but which their employer is not obliged to offer them do count as ‘normal remuneration’ for the purposes of calculating holiday pay in respect of annual leave taken under Regulation 13 of the Working Time Regulations 1998 (WTR). Specifically, this should include ‘non-guaranteed’ overtime that is routinely worked.

In a further case on this subject, the EAT was asked to rule on whether voluntary overtime that is worked on a regular basis should also be included as normal remuneration when calculating holiday pay (Dudley Metropolitan Borough Council v Willetts and Others).

The claim was brought by 56 employees who work for Dudley Metropolitan Borough Council in a number of different roles – as electricians, plumbers, roofers, storemen, operations officers and ‘quick response operatives’. Each employee has set contractual hours, which represent their normal working hours, but they can also volunteer to carry out additional duties that their contracts of employment do not require them to perform. They can suit themselves as to whether or not they are included on the rotas ‘day by day, week by week, month by month or permanently’. The employees claimed that their holiday pay should include out-of-hours standby pay, call-out allowance, voluntary overtime and mileage or travel allowance relating to the additional hours worked.

The Council argued that for a payment to count as normal remuneration, there must be an intrinsic link between it and the performance of tasks that the worker is required to carry out under their contract of employment. The EAT rejected that argument however. Certainly, where there is an intrinsic link between the payment and the performance of tasks required under the contract, it should be included within normal remuneration. However, in the EAT’s view, the absence of such a link would not automatically exclude such a payment from counting. It held that where the pattern of work, though voluntary, extends for a sufficient period of time on a regular and/or recurring basis to justify the description ‘normal’, it is for the fact-finding tribunal to determine whether the work is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration.

In this case, the EAT was satisfied that even if the intrinsic link test were required, the voluntary overtime payments would satisfy that requirement and count as normal remuneration. The arrangements would not exist without the contracts of employment and the tasks performed were those required of the employees under those contracts, even if there was a separate agreement.

Furthermore, EU law requires that normal (not contractual) remuneration must be paid in respect of the four-week period of annual leave guaranteed by Article 7. That overarching principle means that the holiday pay should ‘correspond to the normal remuneration received by the worker’ when at work in order to ensure that they do not suffer a financial disadvantage by taking leave, which might deter them from exercising this important right.

Employers are reminded that the decision only applies to the 20 days’ annual leave entitlement guaranteed under the WTD, not the additional eight days’ entitlement granted under Regulation 13A of the WTR. Whether or not it is practical to differentiate between the two is a decision for the individual employer.

If you have employees whose pay regularly includes overtime worked in addition to the normal working hours stated in their contract of employment, we can advise you of your obligations as regards the calculation of holiday pay. Contact Damian on 020 82636080 for advice on your