HR 11 August 2017

Holiday pay ruling: Tribunal gives staff working voluntary overtime a “break”

Weekly Timesheet
Pay for certain overtime worked must be included in workers’ holiday pay

An employment tribunal recently ruled that holiday pay should include payments for voluntary overtime normally worked. Here, PwC employment lawyer, Chris Perkins, explains the significance of the case in question for employers and workers.

A certain recent decision from the employment appeal tribunal in the case of Dudley Metropolitan Borough Council v Willets & Ors will be welcomed by workers who regularly work overtime and who receive other payments or allowances that have not been reflected in their holiday pay.

This case follows the tide of previous decisions which have found that pay for certain overtime worked must be included in workers’ holiday pay.

What did this case concern?

Workers employed as plumbers, electricians and other similar roles claimed they had not received the correct amount of holiday pay. Their contracts of employment provided for set working hours (usually 37 hours per week). In addition, they:

  • Volunteered to perform additional duties that their contracts did not require them to perform, typically for one week every month
  • Participated in on-call rotas for which they were paid a “call-out” allowance
  • Were entitled to payments for performing out of hours work.

Before this case, employers were able to argue that workers’ holiday pay did not have to include “voluntary” overtime or other irregular or non-guaranteed payments on the basis they did not form part of workers’ “normal remuneration”.

In the last five years, cases in the UK and at the European Court of Justice have decided that allowances and non-voluntary or guaranteed overtime that are “intrinsically linked” to a worker’s performance of his or her duties should be included when calculating holiday pay.

What was the outcome of the case?

In this case, the appeal tribunal made clear that workers’ holiday pay must correspond to normal remuneration – what a worker would have received had they not taken leave.

Payments that have been made for a “sufficient period of time” on a “regular or recurring” basis will qualify as “normal”.  The division of pay into different elements (such as basic pay, overtime pay and allowances) cannot affect workers’ rights to normal remuneration while on leave.  Items which are irregular or exceptional will not meet this criteria.

Critically, the appeal tribunal’s decision only relates to the minimum European holiday entitlement, which is four weeks or 20 days of full pay for a full-time worker.  It does not apply to the extra 1.6 weeks of holiday that UK workers are entitled to in addition.

Significance of this case to employers and employees

Employers who offer varying work patterns, including voluntary overtime or shifts, and additional payments on top of normal wages, should:

  • Review their holiday pay practices and include voluntary overtime and other payments that are not exceptional in their holiday pay calculations; and
  • Consider the feasibility of prescribing (as they are currently entitled) when worker’s holiday falls within the four week EU-derived entitlement versus the additional 1.6 weeks’ pay under UK law.

Workers should consider whether there is a difference in what they are paid when they work versus when they are on annual leave.

If there is a difference, they should consider their ability to make a claim against their employer, within the three-month period.

From 26 July 2017, workers no longer have to pay a fee of £160 to bring such claims to an  employment tribunal.

The impact of Brexit on further changes

With Brexit negotiations ongoing, the government might not have the legislative bandwidth to make specific changes to the UK working time regulations for some time to come.

With the Repeal Bill proposing that all EU laws up to the day the UK exits the EU being translated into UK legislation, and all decisions from the EU courts up to exit day remaining of influence, it is unlikely that any reduction in workers’ entitlements will take place until at least 2019.

However, it is possible that changes which seek to simplify workers’ entitlements will be made. On 11 July 2017, Matthew Taylor, former adviser to Tony Blair and author of “Good Work, Taylor Review in Modern Employment Practices” recommended that all workers be entitled to 12.07 per cent holiday pay based on an average of their actual earnings in the previous 12 months.

Whilst potentially more expensive for employers, this could serve to simplify what remains an evolving and complex area of the law and HR practice.

Chris Perkins is an employment lawyer at PwC

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