Should holiday pay include voluntary overtime?October 10, 2016
The recent case of Brettle v Dudley Metropolitan Borough Council confirmed that regular voluntary overtime should be included in holiday pay under certain circumstances.
Workers are entitled to ‘normal remuneration’
It is well established that workers are entitled to receive their ‘normal remuneration’ when on holiday.
‘Normal remuneration’ includes anything intrinsically linked to the performance of the worker’s duties under their employment contract.
Previous case law has confirmed that the following must be included in holiday pay:
- Contractual overtime i.e. where there is a contractual right to be offered, and a contractual obligation to work, overtime
- Non-guaranteed overtime i.e. where the employer is not obliged to provide the overtime, but the worker is obliged to work it if requested
What about voluntary overtime?
In our experience, voluntary overtime tends to be the most common form of overtime used by employers. With voluntary overtime there is no obligation on the employer to provide additional hours, or for the worker to accept additional hours.
Does voluntary overtime have to be included in holiday pay?
In Brettle v Dudley Metropolitan Borough Council ET/1300537/15, five lead claimants brought claims on behalf of 56 workers in the Council’s repair and improvement department for social housing.
The workers were tradesmen with a variety of skills including roofing, plumbing and electrical work. They worked differing amounts of voluntary overtime and received payments for those additional hours when worked, but not whilst they were on holiday.
The Employment Tribunal decided that voluntary overtime should count as normal remuneration and be included in the calculation of holiday pay if worked ‘regularly’ (i.e. it is not unusual or rare).
In the Brettle case, two workers did regular overtime: Mr Cree had worked every Saturday for the previous few years and Mr Woolvin had worked regular Saturdays although not every week. The overtime pay therefore counted as part of their normal remuneration and had to be included in their holiday pay. However, another worker had worked overtime so rarely that it could not be considered normal remuneration.
Whether or not overtime has been worked with sufficient regularity is determined on a case by case basis.
It is important to note that this was a decision of the Employment Tribunal and is not binding on other tribunals and courts. However, it does provide a useful illustration of the general direction of case law when calculating holiday pay.
What should you do?
Employers can either include voluntary overtime in holiday pay now or wait for further clarification on this issue from a higher Tribunal or court.
The risk of not taking action now is that if a later decision is made by a higher court in a worker’s favour, this could open the floodgates to potential claims for unlawful deduction of wages (particularly if it received press attention). At that point it would be too late to minimise the risk of liability.
An alternative approach
There is a middle ground between taking action and doing nothing.
The rules on holiday pay set out above only apply to the 4 weeks’ holiday entitlement under the Working Time Directive (EU law). They do not apply to the additional 1.6 weeks’ holiday provided under the Working Time Regulations (UK law).
Employers could therefore decide to include voluntary overtime when calculating pay for the 4 weeks’ holiday under the Working Time Directive, and exclude it from the 1.6 weeks’ holiday under the Working Time Regulations. This will ensure compliance and reduce the financial costs of doing so.
Whichever route you decide to take, it is important that your employment contracts are drafted appropriately.
New Minimum Wage Rates
From 1 October 2016, the new rates are:
£6.95 per hour 21-24 years old
£5.55 per hour 18-20 years old
£4 per hour 16-17 years old
£3.40 per hour apprentices under 19 and all apprentices in the first year of their apprenticeship.
The National Living Wage for workers aged 25 and above remains unchanged at £7.20 per hour until April 2017.
If you require advice on your holiday pay arrangements or assistance with updating your contracts of employment please contact Julia Beasley on 0117 930 8408.