Employment Appeals Tribunal (EAT) confirms that voluntary overtime counts towards holiday pay calculations

There has been a degree of uncertainty in the law, since the EAT decision of BEAR Scotland in 2014, as to what should count in the calculation of holiday pay granted by the Working Time Directive (WTD).

BEAR Scotland only dealt with overtime that was either “guaranteed” or “non-guaranteed”. But what about purely voluntary overtime (i.e. where there is no obligation on either side to offer or accept overtime)?

The EAT have now confirmed, in the case of Dudley Metropolitan Borough Council v Willetts & others, that payments for voluntary overtime should be included in holiday pay calculations if they justify falling within the description of “normal pay”.

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

However, the EAT cautioned that each case must be decided on its own facts, and there remains a degree of uncertainty over how “regular and settled” a voluntary overtime arrangement must be to fall within the category of “normal pay”.

Holiday pay and overtime: the current position

It is now clear that, as far as overtime is concerned, the following should be included within the calculation of holiday pay:

• guaranteed overtime – overtime which a worker is required to work and the employer is contractually obliged to provide
• non-guaranteed overtime – overtime which a worker is required to work but which an employer is not obliged to offer and
• voluntary overtime – where there is no obligation on either side to offer or accept overtime, provided it is sufficiently regular and/or recurring so as to fall within the category of “normal pay”.

Practical Guidance

Schools should be mindful of the following key points arising from the EAT’s decision:

• Payments made to staff for voluntary overtime may need to be included in the calculation of their holiday pay

• The question in every case, irrespective of the label put on the payment, is whether it forms part of the worker’s “normal pay”

• For a payment to count as “normal”, it must have been paid over a sufficient period of time on a regular and/or recurring basis, which will be a question of fact and degree in each case

• Whether an overtime payment constitutes “normal pay” does not depend solely on there being a clear link between the pay and the performance of tasks required under the individual’s contract of employment, although if there is such a connection this will be a strong indicator that it should form part of “normal pay”

There remains an element of uncertainty – and we would anticipate a further line of cases – around the question of how regular or recurring an overtime payment must be to qualify.

This leaves schools in the difficult position of having to determine which overtime arrangements will form part of “normal pay” and which will not, such as in the following examples:

• A member of the catering team volunteers to work an additional week over the summer holidays to help out at a summer camp. He has worked these additional hours every year for the past five years. Even though the overtime hours are worked only once in a year, this is likely to fall within the category of “normal pay”, given the recurring nature of the arrangement and should be included within the calculation of holiday pay.
• A teaching assistant regularly volunteers to work overtime to cover after school clubs. Her overtime hours vary considerably but, for the past three years she has volunteered to work at after school clubs at least once every month during term time. This is likely to fall within the category of “normal pay”, given the regular and recurring nature of the arrangement and should be included within the calculation of holiday pay.

• An ICT technician has volunteered to work overtime on a Sunday to implement a new ICT system. This was a one-off occurrence and is unlikely to fall within “normal pay”.  It therefore need not be included in the holiday pay calculation.

It is also worth noting that the ruling only applies to the minimum four weeks’ holiday which is required under the WTD. The additional 1.6 weeks’ statutory holiday that must be provided under UK law is not subject to these rules, nor is any further contractual holiday. By way of reassurance, that still leaves the potential for three-month gaps between WTD holiday in one holiday year and the next, which in turn will make it difficult for claimants to make claims for unpaid holiday pay in respect of more than one holiday year at a time.

In light of this decision, we would recommend that schools undertake an audit of their overtime arrangements. In particular, schools should assess which staff work overtime, whether that overtime is guaranteed, non-guaranteed or voluntary, the pay received for overtime worked, the work undertaken and how regularly overtime is worked by each individual member of staff. Schools may then wish to seek advice as to whether there is a need to adapt the manner in which they calculate staff holiday pay.

We acted for Dudley Metropolitan Borough Council in this case.