The last few years have seen an explosion of case law in relation to holiday pay and, in particular, what payments should be included in the calculation of a worker’s holiday pay.
Many of the issues have been settled. Commission, contractual overtime, non-guaranteed overtime and allowances intrinsically linked to the job the worker does should be included in the calculation of their holiday pay.
A question mark remained over voluntary overtime.
A recent employment tribunal considered the question in light of previous case law and found that voluntary overtime should, in some situations, be included in the calculation of holiday pay.
Brettle v Dudley Metropolitan Borough Council
This case was brought in respect of 56 employees all employed by the Council in its home repair and improvement department. Most of the employees had similar roles, allowances and working patterns.
The employees were paid their basic pay when they took annual leave but claimed that certain payments normally received by them should have been included when calculating the amount of their holiday pay. Specifically, the payments related to voluntary out of hours standby, voluntary call out allowances, travel allowance and additional voluntary overtime.
An additional question tackled by the Employment Tribunal was whether the holiday that a worker is entitled to under the European Working Time Directive (4 weeks) should be deemed to have been taken before holiday entitlement under the UK Working Time Regulations 1998 (1.6 weeks) in any given holiday year. The expansion of elements to be included in holiday pay emanates from the Court of Justice of the European Union, in its interpretation of the Directive. Consequently, earlier UK case law has made it clear that the inclusion of certain payments in the calculation of holiday pay will only apply to the 4-week European element of statutory holiday.
Out of hours standby payments
Certain Claimants received a payment in relation to being on standby at a rate of one week in 4 or one week in 5. The relevant Claimants could voluntarily opt to join the rota to be on standby and even when on the rota it was entirely voluntary as to whether they did it. The employees could swap their allotted standby periods with other employees or simply tell the Council that they did not want to undertake them and the Council would then find a replacement. Notwithstanding the voluntary nature of the arrangements, the Employment Tribunal found that they were paid with sufficient regularity so that they were part of their normal pay and should be included in the calculation of their holiday pay. If they didn’t receive an amount in respect of these payments when on holiday it could deter them from taking leave, which is contrary to the Directive.
Call out allowances
The employees again participated in a voluntary rota but once an employee was on the voluntary rota, they had to attend any call outs arising at their allotted time. The Employment Tribunal found that the Council allowed employees to volunteer which was an opportunity not available to every employee, so the payment for call outs arose from their normal employment and the pay received was therefore normal pay. Consequently, these payments should be included in the calculation of holiday pay.
The employees were paid an enhanced amount of 55p per mile for any travel they undertook. The Employment Tribunal found that any part of such payment which was subject to tax as a benefit in kind formed part of an employee’s normal pay. The payment was not designed to reimburse the employee for expenditure; it was a benefit and so part of normal pay being intrinsically linked to the performance of tasks under their contract of employment. It therefore needed to be included in the calculation of holiday pay.
Additional voluntary overtime
The Employment Tribunal drew on previous decisions in relation to overtime and found that to be capable of inclusion in the calculation of holiday pay, voluntary overtime needed to be performed with a degree of regularity. Consequently, the Employment Tribunal found that an employee who regularly worked Saturday as voluntary overtime and one employee who regularly worked voluntary overtime that was expected of him under his job description should have the overtime included in the calculation of holiday pay. Conversely, one employee who seldom worked overtime failed in their claim.
Finally, the Employment Tribunal gave its view that in the absence of an agreement to the contrary, employers and tribunals can treat European holiday (4 weeks) as being taken before UK holiday (1.6 weeks) in any leave year. A failure to include these additional payments in holiday pay will only amount to an unlawful deduction from pay in relation to European holiday, with employees only having 3 months to initiate a claim by contacting ACAS. A 3 month break between any unlawful deductions breaks a series of unlawful deductions, so in many cases it will be difficult for employees to claim for underpaid holiday for previous leave years. In any event, employees can now only bring a claim for deductions occurring in the two years prior to any claim.
Whilst this is only an Employment Tribunal decision and therefore not binding on any other Employment Tribunals it will be persuasive and demonstrates the direction of travel in relation to holiday pay.
The headlines will focus on voluntary overtime having to be included in the calculation of holiday pay; however, the judgment makes it clear that voluntary overtime will need to have been worked with a sufficient degree of regularity for the overtime payments to become part of ‘normal pay’. It is unlikely that genuinely ad hoc overtime should be included in the calculation of holiday pay.
If you have any queries regarding holiday pay or any other HR queries then please contact Joanne Holborn, Tom Scaife or Caroline Rayner on 01228 552600 or 01524 548494.