Employment e-Brief: Should Voluntary overtime be included in holiday pay calculations?

A further first instance tribunal decision has confirmed what we have been advising about holiday pay calculations since last year’s benchmark decision in Fulton and others v Bear Scotland Ltd and others.

The question everyone wanted answering was this: given that contractual overtime and non-guaranteed contractual overtime payments have now been found to affect holiday pay, how likely is it that entirely voluntary overtime payments need to be included also? And if they do, how regularly will the overtime need to be worked for it to be necessary to include it?

The case of White and ors v Dudley MBC 2016 appears to have followed the logic we expected and we anticipate that other decisions will follow the same line.

The Midlands (West) Employment Tribunal, allowed the claim for unauthorised deductions from wages, deciding that the calculation of their holiday pay should take into account payments they received regularly for voluntarily performing overtime, which included voluntarily being on stand-by and voluntarily being called out for emergency work. The employer had been calculating the claimants’ holiday pay solely on the basis of their contractual pay. The finding was that because the payments for the voluntary undertakings had been made regularly for a number of years, they were part of the claimants’ normal pay. The payments therefore had to be included in the calculation of their holiday pay for the first four weeks of annual leave, under regulation 13 of the Working Time Regulations 1998, SI 1998/1833 (WTR 1998).

In earlier cases in the ECJ, the point of critical importance was whether the payments in question were for work that was ‘intrinsically linked to the contract’. It was argued that this then allowed employers to exclude payment for purely voluntary overtime as the absence of a contractual requirement to do it meant that it could not be linked to the contract.

In White, the judge decided that ‘work intrinsically linked to the contract’ meant an employee’s normal work. The judge was clearly sympathetic to the notion that where an employee volunteers for extra work so often that it becomes part of their normal work, then the payments for it would be part of their normal pay. Where that is the case then such overtime payments should be included in the calculation of holiday pay.

So how often does voluntary overtime need to be worked to be considered part of normal work? Guess what: no clear guidance was given so it is a grey area. I suggest use a common sense approach.

Note that the principle only applies to the four weeks holiday under WTR 1998, reg 13. The extra eight days of entitlement and any extra contractual days are determined by contractual pay and exclude work that employees have volunteered for.

This is actually the second first instance decision, the first one having been a Northern Ireland case which is not binding on English tribunals. That said, both cases followed the same logic so this definitely seems to justify the advice we have been giving for some time, i.e. that this outcome was more or less inevitable.

If you would like to discuss this e-Brief in further detail, please contact Philip Paget on 0113 227 0212 or at philip.paget@gordonsllp.com