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Important new changes on voluntary overtime and holiday pay

There is an important decision out this month on voluntary overtime and holiday pay called Dudley Metropolitan Borough Council v Willetts.

Where we had reached previously in the case law is that where the overtime on the part of the employee was not voluntary and the employee would need to work the overtime if asked, then generally overtime actually worked needed to be taken into the calculation for holiday pay. This is the case even where the employer is not obliged to offer overtime.  The case law has called this “non-guaranteed overtime” or “compulsory overtime”.

The Willetts case changes things as it looks at truly “voluntary overtime”.  Willetts says that even where there is no obligation on the employer to offer overtime and no obligation on the employee to accept overtime (so entirely voluntary) it will need to be taken into account for holiday pay calculations in some circumstances. The most important of these circumstances is that the voluntary overtime must be done regularly and over sufficient time. What is meant by this is up for some debate. But Willetts suggests that only voluntary overtime which is “very rare” won’t count.

How employers calculate the overtime holiday pay element isn’t entirely straightforward. Assuming it is due, it only applies to the four weeks’ EU directive holidays and not the additional 1.6 weeks under the UK working time legislation. Some employers choose to calculate on the 5.6 weeks as this is simpler. Some employers choose to calculate on all of their contractual holidays (public holidays aside) even where that is more than 5.6 weeks, again because it is simplest.

Also, assuming it’s due, what happens if for example overtime is worked some weeks/months but not others. The principle is that holiday pay must correspond to “normal remuneration” as if the employee hadn’t been on holiday. The Willets case said that it should be averaged out but didn’t say over what period.   It is, however, common to average out over the previous 12 weeks before the holiday was taken, as that is what happens when calculating pay in some other situations.

Many employers of all sizes have not been including overtime in holiday pay calculations to date as they ensured that overtime was voluntary on the part of the employee. Going forward, unless the overtime is very rare, it will be difficult to exclude it. It is likely that the trade unions will be looking carefully at this, particularly now employment tribunal fees have been abolished.

For more information in regards the new changes on voluntary overtime and holiday pay or any other Employment Law issues please contact Jacqueline McCluskey.

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