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EAT rules on holiday pay and voluntary overtime

BY Sophie Macphail
Employment Law & HR
BG Purple

The EAT has confirmed that voluntary overtime should be included in the calculation of holiday pay, provided that it is worked regularly. The case of Dudley Metropolitan Borough Council v Willetts and others is the latest in a series of holiday pay cases which confirm that amounts over and above normal pay should be included in holiday pay calculations if they are ‘intrinsically linked’ to performance of the contract.

Before we delve into the details of this case, it’s worth taking a trip down memory lane to remember how we got here. Under the UK’s Working Time Regulations, the calculation of weekly pay for workers without normal working hours is a relatively straightforward average of all pay (including bonuses, overtime and commission) worked in the 12 weeks prior to the holiday. Fixed-pattern workers, on the other hand, are simply entitled to basic pay, with no provision for overtime, bonuses or commission.

However, the latter calculation has been the subject of extensive litigation in recent years. The European Court of Justice, concerned that the WTR calculation deters individuals from exercising their right to annual leave, has taken the view that holiday pay should accurately represent normal earnings. In the landmark case of Williams and others v British Airways plc the ECJ held that holiday pay should include not only basic salary but also remuneration  ‘intrinsically linked’ to the performance of tasks that a worker is required to carry out in their contract of employment. But what exactly does this cover?

Well, the answer to that has come in a piecemeal fashion as various cases have made their way through the courts. The Williams case concerned payments made to pilots such as ‘flying pay’ and ‘time away from base’ allowance. Very relevant to pilots, but not much use for most workers. More helpful guidance came in Lock v British Gas Trading, when it was decided that commission should be included. Then the various decisions in Fulton v Bear Scotland confirmed that guaranteed overtime should be included too. However, the position of voluntary overtime remained unclear.

At long last, EAT has addressed this issue. In the Dudley case the EAT ruled that voluntary overtime work completed in this case was intrinsically linked to the claimants’ work and was ‘normal pay’. Three key principles can be drawn from the case. Firstly, ‘normal pay ’is any payment paid over a sufficient time on a regular basis. Secondly, voluntary work should not be excluded from calculating holiday pay. Thirdly, although an intrinsic link would be decisive on what constitutes a normal payment, it is not the only factor for consideration and is not essential.

This case has provided employers with some clarity over the position of voluntary overtime, although the definition of ‘regular’ is still rather muddy. Until further case law emerges refining this concept, it would be wise for employers to have procedures in place to tackle borderline cases.

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