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Regular voluntary overtime must be included in holiday pay.

The Employment Appeal Tribunal (EAT) has confirmed that payments for purely voluntary overtime should be included in holiday pay if they are regular enough to constitute “normal pay”. What does this mean for HR practitioners and employers?

According to EU Law, workers should receive “normal remuneration” during periods of statutory holiday for work which is “intrinsically linked” to the performance of their duties. As a result, in the UK, workers who work regular hours, but receive additional pay, for example, in the form of overtime, commission, or bonus payment, are therefore entitled to have the additional pay to be included in the calculation of holiday pay. However, the question as to whether payment would be received as part of the worker’s “normal remuneration” if overtime was voluntary and the employee not contractually required to perform this, remained unanswered.

In the recent case of Dudley Metropolitan Borough Council v Willet and others, council workers brought claims for unlawful deductions from wages in relation to the calculation of their holiday pay.

Council workers argued various allowances and payments made for voluntarily working in excess of their contracted hours should be included in the calculation of holiday pay. Since overtime was worked regularly, it should therefore be considered part of their “normal pay”. In response, the employer argued, as the work was voluntary, it was not “intrinsically linked” to the performance of the tasks that were required under the contact of employment. However, the Employment Appeals Tribunal rejected this argument, citing, the purpose of the Working Time Directive was to encourage workers to take their holiday and to receive less than their normal pay at times of holiday was likely to discourage workers from taking it.

So, what does this now mean for employers?

Employers will therefore need to apply this when calculating holiday pay for their workers who regularly work voluntary overtime. In most cases whether this applies should be a matter of common sense and whether a payment is part of “normal pay” does depend on the facts of each case.

Employers should also be aware; the rule only applies to the four weeks’ holiday provided under the Working Time Directive and does not apply to the additional 1.6 weeks’ holiday which the UK law requires.

For further guidance and advice tailored to your situation, please reach out to the Buzzacott HR Consultancy team or enquiries@buzzacott.co.uk