Voluntary Overtime Now Included in Holiday Pay

On 31 July 2017 in the judgement of ‘Dudley Metropolitan Borough Council v Willets & Others’ an Employment Appeal Tribunal (EAT) ruled on a major decision regarding Holiday Pay which will have a significant impact on UK businesses with immediate implications.

Holiday Pay position prior to 31 July 2017

As you may recall previous case law judgements have already made it clear that compulsory overtime should be included for the purposes of calculating holiday pay, and this is the first binding decision on this point in England and Wales.

The ruling was influenced in part by the previous case of ‘Lock v British Gas’ in October 2016, where employees wages included commission, but were being financially disadvantaged when taking annual leave. There was therefore little incentive for them to take a holiday.

The ruling means that for example, if an individual is working on average an additional 10 hours per week overtime, and has a 40 hour per week contract, they will receive 50 hours holiday pay when taking a week’s annual leave.

It should be noted that this ruling only applies for the statutory 4 week holiday entitlement under the EU Directive and is therefore not applicable for the full 5.6 week entitlement under UK law.

New Judgement

On 31 July 2017 the EAT held that any employees who voluntarily work overtime hours on a regular basis, should be entitled to remuneration for those hours.

In addition, the EAT ruled that standby, call-out work, and travel time linked to that work should be included within the calculation of statutory holiday pay.

The EAT held that, where the pattern of  work extends for a sufficient period of time on  a recurring basis to justify the description “normal”, voluntary overtime pay must be included in holiday pay.

Whilst there is no set reference period for Employers when calculating the regularity of any voluntary overtime worked, employers are advised to consider this over a 12 week period.

This is a significant ruling, and the impact on employers will vary according to the shift patterns and working practises exercised. Tamar HR advise that  Businesses should begin reviewing each employee’s pattern of work as soon as practicable to consider whether they meet the criteria set out by the EAT. Failure to do so could bring about claims for unlawful deduction of wages.

If you would like to discuss this further or need support in reviewing this, your Tamar HR Advisor will be pleased to support you through the process.

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