Voluntary Overtime and Holiday Pay
Following a spate of decisions over the last few years from the Employment Appeal Tribunal (EAT) and European courts on calculating holiday pay for those who work overtime, we have been waiting for a final decision in White & Others v Dudley Metropolitan Borough Council on how this applies to voluntary overtime (rather than guaranteed and non-guaranteed arrangements). A binding decision has now been made by the EAT that payments for voluntary overtime should be included in holiday pay if they are regular enough to constitute “normal pay”. So what does this mean?
In this case, the Employment Tribunal (ET) accepted that staff at Dudley Metropolitan Borough Council could “drop on and off the rotas to suit themselves whether day by day, week by week, month by month or permanently” and additional work was “almost entirely at the whim of the employee, with no right to enforce work on the part of the employer”. This would therefore support a situation where working overtime was entirely at the employees’ choice. However, the ET concluded that the council workers’ overtime payments were sufficiently regular to constitute “normal pay” and therefore referring to previous case law, confirmed that “normal pay” must be included in holiday pay.
As this decision is binding, from now on any employer who has employees working overtime on a voluntary basis where the pattern of overtime work extends for a sufficient period of time on a recurring basis, must include overtime pay in holiday pay for a minimum of 20 days of the employee’s annual leave (including bank holidays) .
Unhelpfully however, the tribunals have not provided a definition of what is a sufficient period of time and regularity and have said that each case will have to be decided individually on its own facts. Our advice would be that employers should apply the principle that employees and workers should receive the same pay while they are on annual leave as they normally receive while they are at work. This means that most employees who work overtime more than just sporadically would be entitled to holiday pay taking into consideration overtime and this should prevent any claims.
Holiday pay in this instance is calculated by taking the pay for the normal weekly working hours multiplied by the workers average hourly rate over the preceding 12 weeks. Employers may also face claims for backdated holiday pay however, the Deduction from Wages (Limitation) Regulations 2014 means that a claim for backdated deductions for holiday pay are subject to a two year cap. This means that the period that the claim can cover will be limited to a maximum of 2 years.
For more information on this and how to implement this change contact Anita Wynne, Streets HR, on 01438 747747.
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