Calculating holiday pay: voluntary overtime

The Tribunals’ decisions in these cases have changed the landscape of holiday pay somewhat.

The decisions dictate what employers are expected to pay their employees whilst on annual leave.

Business employment law is constantly changing, we are industry leading in providing businesses across the UK with the advice they need to stay at the fore. We can assist in educating key figures in employment law changes as they happen.

How have things changed to date?

It is no longer the case that employees should receive just their basic salary during holidays.

Employees are now entitled to their ‘normal pay’ whilst they are away on holiday.  This means that they are entitled to the same pay they would have received had they been at work.

An employee’s normal pay means payments that:

1. Have been made over a sufficient period of time for them to be classed as normal.  So, for instance, a one-off payment is unlikely to be classed as normal pay
2. Are intrinsically linked to the employee’s job

This comes into play when employees are earning ‘extra’ payments on top of their basic salary; for instance, where employees earn things like commission and overtime and so on.

The idea behind the decisions is that employees should not be deterred from taking annual leave through fear of missing out on extra payments that they could earn if they stay at work.

What is new again?

In a recent case discussed by the Tribunal, voluntary overtime (i.e. overtime that an employee can volunteer to perform, but is under no obligation to perform) was contested as to whether it should be classed as ‘normal pay’ for the purposes of calculating holiday pay.

The Tribunal decided, yes, voluntary overtime should form part of the holiday pay calculation and should be factored in when paying an employee during their annual leave.

This is the first decision that is binding on the Tribunal’s regarding voluntary overtime, and it is a significant one.

This decision establishes that, if you have employees that are carrying out voluntary overtime on a relatively regular basis, then it is very likely such payments should also be factored into their holiday pay calculations.

The case that caused the discussion

The case this decision has come from is called Dudley Metropolitan Borough Council v Willetts.

The employees were Quick Response Operatives working for the Council (electricians, plumbers, roofers etcetera). In addition to their standard hours, they also had the option of working entirely voluntary overtime.  The employees could drop on and off the rotas to suit themselves.  If they took the overtime up, they received additional standby and callout allowances, but the employer could not force the employees to do the overtime.

In deciding this case, the Tribunal found that:

1. The payments for the voluntary overtime were linked to the Quick Response Operatives’ jobs because they were doing the same work during the overtime as they were during their standard working hours
2. In order for the payment to count as “normal”, it must have been paid over a sufficient period of time.  As such, if employees have been working voluntary overtime for a sufficient period of time, then such payment would be classed as normal.