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The Employment Appeal Tribunal (EAT) decision in Dudley Metropolitan Borough Council v Mr G Willetts and Others forms part of a long-running series of cases extending the scope of holiday pay beyond basic pay to include commission, contractual overtime and other elements of pay.

This case considered whether voluntary overtime (i.e. overtime an employee is under no obligation to work, if offered) should be included in a worker’s holiday pay.

Statutory holiday pay

In this case, a group of 56 employees within a directorate that carried out housing repairs for the council claimed that they had not received the correct rate of statutory holiday pay.

They each had set contractual hours (for almost all, 37 hours per week), which represented their normal working hours. In addition, they volunteered to perform additional overtime duties, which their contracts of employment did not require them to carry out. This work is done almost entirely at the wish of the employee, with the council having no right to enforce work. The employees argued that their holiday pay should reflect voluntary overtime, call-out payments, and mileage and standby allowances.

Unlawful deductions

Five lead claimants were selected to bring a claim for unlawful deductions from wages before an Employment Tribunal.

The tribunal and EAT concluded that the workers’ holiday should include the following elements of their pay:

  • Voluntary Overtime;
  • Callout allowances;
  • Out of hours payments.

In coming to its conclusion, the EAT focused on the overarching principle established in the 2012 British Airways v Williams case, that holiday pay should correspond to the ‘normal remuneration’ received. The purpose of this requirement is to ensure that a worker does not suffer a financial disadvantage by taking holidays, which is liable to deter them from exercising their right to take annual leave.

The EAT considered that the Williams case made it clear that the division of pay into different elements cannot affect a worker’s right to receive normal remuneration during annual leave.

For payment to be considered ‘normal’ it must have been paid over a sufficient period of time. Items that are not usually paid or are exceptional do not count for these purposes.

In this particular case, the EAT found that there is no difficulty in concluding that a payment is normally made if paid over a sufficient period of time on a regular basis, say, for one week each month  or one week in every five weeks, even if it is not paid more frequently or even each week.

What to include in holiday pay calculations

This case shows that the definition of normal remuneration will be interpreted widely by the courts. Care should be taken when processing holiday payments for workers whose pay varies, for instance, because they undertake voluntary overtime, call outs and out-of-hours work.

If these payments have been paid for a significant period of time and are not one-off or exceptional payments, they likely ought to be taken into account when calculating the worker’s holiday pay. In all cases, this will be a matter of fact and degree for a tribunal to determine. Advice should be sought if there is any uncertainty.

It should be noted that this decision only applies to the 20 days’ (i.e. four weeks’) annual leave workers are entitled to under the Working Time Directive and does not extend to the additional eight days (1.6 weeks) under the Working Time Regulations or any contractual holiday entitlement over and above that right.

For information on any of the issues raised in this article, contact Sarah FitzGerald in our Leeds Employment Law team by emailing [email protected] or calling 0113 212 6024.