The Employment Appeal Tribunal (EAT), the Tribunal which hears appeals from the regular Employment Tribunal, has recently confirmed that regular payments for overtime incurred voluntarily by employees should be taken into account when calculating an employee’s allowance of 20 days of holiday pay (this is the statutory minimum amount of holiday leave outside of the 8 days usually allowed for bank holidays). This was in a case called Dudley Metropolitan Borough Council v Willetts.
This follows the well-publicised case of Bear Scotland v Fulton in 2014 which stated that overtime should be factored into holiday pay calculations (mainly by averaging payments over a defined period of time and ‘bumping up’ employee’s holiday pay accordingly).
However, there have been arguments that there should be a distinction between mandatory overtime and voluntary overtime. Just for clarity, when I say ‘voluntary’ overtime, I mean overtime that an employee isn’t contractually obliged to perform (i.e. I don’t mean unpaid overtime). You can see both sides on this one – from one point of view, employees have no choice but to accept mandatory overtime and therefore only that should increase holiday pay amounts, whereas on the other hand, employees will still be working overtime whether voluntary or mandatory and shouldn’t they therefore be rewarded for their voluntary act?
On this occasion, the EAT has come down on the side of employees and concluded that, as long as the voluntary overtime is ‘regular’ enough, it should be used within holiday pay calculations. This is because ‘regular’ payments will constitute ‘normal pay’ for the purposes of holiday pay calculations. Naturally, the phrases in quotation marks are still prone to argument and a lot depends on the individual facts.
So, what does this mean going forward for employees? Well, it suggests that employees on a voluntary rota (or similar) who are called to work voluntary overtime are entitled to an increase in their holiday pay in respect of that voluntary overtime.
Let’s take the case of six employees: Monica, Rachel, Phoebe, Joey, Ross and Chandler (yes, as you probably suspected, this is the cast of FRIENDS). Let’s say the three girls have a mandatory overtime clause in their Contract of Employment (stating that they must work all required overtime at an hourly rate of £10 per hour) and that the three boys don’t have this clause but, regardless, have signed up to a voluntary overtime rota (also for £10 per hour). Due to the recent EAT judgment, if all six work an average of two hours’ overtime per week (i.e. obtain an additional £20 in overtime per week), they will all obtain that additional £20 in each week’s worth of annual leave. It won’t matter that the boys did so under a voluntary rota as long as that voluntary overtime is ‘regular’ enough.
As a result, some employers may face slightly higher annual leave payments. However, on the other hand, those employers benefit from employees setting aside their time voluntarily, so this would hopefully prove a relatively small cost to bear (warning: that was a pun based on the name of the Bear Scotland case – I do apologise!