Voluntary overtime should have been included in holiday pay says the EAT
Voluntary overtime and other payments associated with rotas worked voluntarily should have been included in employees’ statutory holiday pay.
The EAT has upheld an employment tribunal’s decision that pay for voluntary overtime, standby allowances, call-out allowances and mileage payments made in respect of work done voluntarily should have been included in statutory holiday pay for the basic four week holiday entitlement provided under the Working Time Regulations 1998 (WTR). The overarching principle is that holiday pay should correspond to normal pay. On the facts of this case, these payments were all paid with sufficient regularity to form part of normal pay.
In Dudley Metropolitan Borough Council v Willetts and others, five lead claimants brought an unlawful deduction from wages claim in respect of 56 Council employees. They all had contractual hours (mostly 37 hours per week) but they also volunteered to perform additional duties which their contracts did not require them to carry out and which was therefore entirely voluntary on their part. They argued that voluntary overtime pay, standby allowances, call-out allowances and mileage payments made in respect of work done voluntarily should have been included in their holiday pay. The employment tribunal concluded that in the case of four of the five lead claimants these payments should have been included in holiday pay as they formed part of their normal pay .
Only two of the lead claimants worked voluntary overtime. One worked it every Saturday and the other worked it only rarely. The employment tribunal ruled that overtime pay should have been included in holiday pay for the former (where it formed part of normal pay), but not the latter (where it did not).
The employment tribunal concluded that although participation in on-call rotas was entirely voluntary, the out of hours standby allowance formed part of normal pay. It had been paid to each of the claimants over a period of years, at a rate of one week in four or one week in five. Failure to pay it may have deterred a worker from taking leave.
The employment tribunal noted that whilst participation in on-call rotas was entirely voluntary, once an employee was on the rota they were required to attend any call out. The allowance was intrinsically linked to the work required of them and arose out of the employment. The remuneration received was therefore normal pay.
The employment tribunal noted that the travel rate was paid at a higher rate than that recognised by HMRC. It was not therefore purely a reimbursement of expenses and instead there was an element of a benefit in kind. It ruled that the part of the allowance that was subject to tax as a benefit in kind was part of normal pay.
4 or 5.6 weeks?
The employment tribunal went on to confirm that these elements should only be included when calculating holiday pay for the basic four week leave entitlement under the WTR. They did not need to be included when calculating holiday pay for the additional 1.6 week’s holiday provided under the WTR or any additional contractual holiday entitlement.
The Council appealed to the Employment Appeal Tribunal (EAT), arguing that for something to count as normal pay, EU case law requires an intrinsic link between the payment and the performance of tasks that the worker is required to carry out under his contract. Voluntary overtime is not performed under the contract and so should not be included.
The EAT disagreed and dismissed the Council’s appeal. The overarching principle is that holiday pay should correspond to normal pay so that workers are not deterred from taking holiday and suffer no financial disadvantage in doing so. The test therefore is what is normal pay? To count as “normal” it must have been paid over a sufficient period of time which will be a question of fact and degree. Items which are not usually paid or are exceptional do not count as part of normal pay, while items that are usually paid and regular across time may do so.
An intrinsic link between the payment and the tasks required under the contract is not necessary. Whilst an intrinsic link will mean that the payment forms part of normal remuneration, the absence of such a link does not automatically mean that it does not. In any event, such a link was present in this case as once a worker commenced overtime or an on-call shift, they were performing tasks required under the contract. If there were no contract, no arrangement for overtime or on-call work would have existed.
The employment tribunal had therefore been entitled to decide that payments for voluntary overtime, standby and call-out allowances and mileage payments formed part of normal pay for these employees and should have been included in their statutory holiday pay for the four weeks’ basic leave under the WTR.
This EAT decision provides further clarification for employers that regular voluntary overtime and other payments for work done voluntarily should be included in statutory holiday pay. However the EAT warned that each case must be decided on its own facts – not all pay for voluntary overtime and other work done voluntarily will have to be included and tribunals will no doubt continue to hear arguments about whether it has formed part of an employee’s “normal pay”.
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