Breaking news: Voluntary overtime must be included in holiday pay

The EAT has today ruled that voluntary overtime must be included in holiday pay.  In the case of Dudley Metropolitan Borough Council v Willetts (and others) the EAT said that voluntary overtime should not treated any differently than other compulsorily worked overtime.  Workers undertaking voluntary overtime over a sufficient period of time on a regular and/or recurring basis are entitled to have these payments included in the first four weeks’ of their paid holiday. 

Background to the case

A number of holiday pay claims were brought against the Council by a group of 56 employees responsible for the repair and maintenance of council houses.  They worked a set number of hours per week (usually 37) which counted as their normal working hours.  In addition, once in every 4 weeks (and in some cases 5 weeks) they were on an on call register and worked additional voluntary hours.  However, these voluntary payments were excluded from their holiday pay and the workers argued that this was contrary to the Working Time Regulations 1988 (“WTRs”).

Their claims were initially successful and the Council appealed to the EAT.

EAT decision

This is the first occasion the EAT has heard cases relating to purely voluntary overtime. 

Despite some very creative arguments put by the Council, the EAT drew on previous ECJ decisions which had emphasised that workers should receive “normal remuneration” when they take a holiday.  The EAT stated that workers should not be deterred from exercising their rights to take paid annual leave and any reduction in salary is presumed to act as a deterrent.

The case was remitted back to the Tribunal to determine whether or not, on the facts, Mr Willett and his co-workers had been underpaid holiday. 

What this means

This decision is extremely important.  Many of our clients have adopted a “wait and see” approach to voluntary overtime.  This option is no longer possible except where the overtime is genuinely ad hoc; overtime that is worked regularly (i.e at certain times of the year) or frequently (i.e. often) must now be included in holiday pay (supporting our view on this matter as expressed in previous bulletins).  

Does all voluntary overtime have to be included?

No, purely ad hoc or irregular overtime does not have to be included but, the EATs made it clear that overtime that “extends for a sufficient period of time on a regular and/or recurring basis” will need to be included.  

There is no statutory definition of what amounts to ‘normal pay’ and Tribunals will continue to hear arguments about whether overtime (of whatever nature) has become part of an employee’s normal pay.  

However, this has become more difficult.  The EAT specifically rejected arguments made on behalf of the Council that normal weekly pay for these workers did not include voluntary overtime because it was only worked once every 4 or 5 weeks and could not therefore be said to amount to their normal working pattern.  The EAT said that workers do not have to be paid for working voluntary overtime each week for this to amount to a regular pattern. 

Does voluntary overtime have to be included in all holiday pay?

No.  This case makes it clear that it only applies to the first 20 days’ leave taken in each holiday year.  Employers can therefore exclude voluntary overtime from additional statutory (e.g. the further 8 days) or contractual leave (in excess of the extra 8 days).

Will this decision expose employers to backdated claims for voluntary overtime?

No.  The position remains that employees who have a break of more than 3 months between payments will not be able to (successfully) argue that they have suffered a series of deductions.  This is because of previous case law to this effect.  The requirement to include regular overtime only relates to 20 days' leave required under the Working Time Directive and not to additional leave.  Accordingly, if there is more than a three month gap between payment for the 20th day of leave and payment for the first day of the new holiday leave being taken, the cycle will be broken. 

However, this decision may leave employers vulnerable to claims relating to underpayment of holiday in their current holiday year.

We can help you

Irwin Mitchell are exploring a number of creative ways to minimise employers’ potential liabilities for holiday pay. If this issue has significant financial implications for your business, please contact us for advice.

This decision is extremely important. Many employers have adopted a “wait and see” approach to voluntary overtime. This option seems no longer possible save for in circumstances where the overtime is genuinely ad hoc, and it seems therefore that regular overtime (i.e at certain times of the year) or frequent overtime (i.e. often) must now be included in holiday pay (supporting our view on this matter as expressed in previous bulletins). ”