In the latest in a series of UK holiday pay judgments, the employment appeal tribunal (EAT) considered whether payments for voluntary overtime had to be taken into account in calculating holiday pay.
A group of 56 employees, working in a number of different roles carrying out housing repairs for a council, claimed that they had not received the correct rate of statutory holiday pay. In addition to their normal working hours, they volunteered to perform additional duties which their contracts did not require them to carry out, which were entirely voluntary overtime. The employees claimed their holiday pay should reflect voluntary overtime, out-of-hours standby payments and call-out and mileage allowances.
The EAT concluded that where there is an intrinsic link between the payment and the performance of tasks required under the employment contract, the payment must be taken into account in calculating holiday pay – but even if there is not a link, the payment may still need to be taken into account. It said that the voluntary overtime, and other related payments, can form part of the employees’ “normal remuneration” and be included in the calculation of holiday pay because otherwise the employees may be put off taking their holiday.
Whether on the facts of any particular case voluntary overtime should be taken into account in the holiday pay calculation is a question of fact for the tribunal in each case, depending on whether the voluntary overtime has extended for a sufficient period of time on a regular and/or reoccurring basis to justify the description “normal”.
Employees can enforce this right to increased holiday pay by bringing a claim for unlawful deduction from wages – so most employers which have held off from changing their holiday pay calculations because of the lack of a definitive decision on the treatment of voluntary overtime will now need to change their approach.
Employers should review their overtime and similar payments and consider whether they are paid with sufficient regularity so as to mean that they amount to normal remuneration and must be factored into holiday pay. In deciding whether a payment should be included, it may be helpful to ask yourself what the worker would have earned if they had not taken holiday. Employers will need to determine criteria for when voluntary overtime is sufficiently regular to be factored in to calculations, and how to deal with practical payroll issues. Where they are unionised, employers may want to discuss this approach with their recognised unions. If employers change their practices they will also be keen to take steps to protect themselves against backward-looking claims, and the timing of introducing any such changes may (especially in the light of the removal of tribunal fees) be an important consideration.