Regular Overtime

According to case law, workers are entitled to be paid their “normal remuneration” whilst on annual leave. In Dudley Metropolitan Borough Council v Willetts and ors, the Employment Appeal Tribunal (EAT) has held that this can include voluntary overtime payments if they are made on a regular basis.

Basic facts

A group of employees who worked in a number of different roles for the Council were contracted to work in the region of 37 hours per week. As well as a contractual right to two to four hours’ overtime, they were also on call for one week in every four (or sometimes five) and did additional voluntary overtime. The Council had no right to enforce this overtime work.

A test group of employees (on behalf of 56 claimants in total) brought claims for unlawful deductions from wages on the ground that, as their holiday pay excluded out of hour’s standby pay; call out allowance; voluntary overtime; and mileage or travel allowance, they were not in receipt of their “normal remuneration” when on holiday, contrary to the Working Time Regulations and the European Working Time Directive (WTD).

Relevant law

Under Article 7 of the WTD, workers have the right to at least four weeks’ paid annual leave. Although it does not specify how holiday pay should be calculated the Court of Justice of the European Union (CJEU) has interpreted this as meaning that it should form part of a worker’s “normal remuneration”.

Tribunal decision 

Referring to the judgment of the CJEU in British Airways plc v Williams and ors, the tribunal concluded that it had to take into account anything “required of the claimant under his [sic] contract of employment which is intrinsically linked to the performance of the required tasks”, but to leave out “occasional or ancillary costs” in order to ensure employees were not disadvantaged when taking their leave.

Although the tribunal accepted that it was sailing into “uncharted waters”, the judge concluded that the various elements of pay identified in the claim, including voluntary overtime pay, was regular enough to be deemed to be “intrinsically linked” to the work required of the Council workers.

EAT decision

Dismissing the appeal, the EAT held that the division of pay into different elements cannot affect a worker’s right to receive “normal remuneration” in respect of annual leave.  In each case the relevant element of pay must be assessed in light of the overarching principle and objective of Article 7 which is to maintain normal remuneration so that holiday pay corresponds to (and is not simply broadly comparable to) remuneration while working.

Although it will be a question of fact and degree as to whether a payment counts as “normal”, questions of frequency and regularity are obviously crucial. It follows that items which are not usually paid or are exceptional will not count for these purposes, whereas items that are usually paid and regular across time are likely to be.

Although an intrinsic link between the payment and the performance of tasks required under the contract means that it must be included within normal remuneration, it is not the only decisive criterion. But even if no intrinsic link can be established, the payment will not automatically be excluded from counting towards holiday pay. 

As the payments in this case were made on a regular basis, the tribunal was therefore right in finding that remuneration linked to overtime work that was performed on a voluntary basis could be included in normal remuneration for calculating holiday pay.