Most employers will be aware of the extensive case law that has emerged over the past few years regarding the calculation of holiday pay where employees also work overtime.
We have now received a decision from the Employment Appeal Tribunal (EAT) that has ruled that voluntary overtime, worked over a sufficient period, is regarded as “normal pay” and so holiday pay must be calculated based on normal remuneration.
In the EAT case, several council workers claimed that they hadn’t received the correct rate of holiday pay since their voluntary overtime wasn’t included in that payment. The EAT relied on the principle that it would be unreasonable for the worker who receives standby allowances or overtime consistently and regularly to be deterred from taking leave if such payments weren’t included in their holiday pay.
The issue of what constitutes “normal pay” was cleared up by the EAT, explaining that it would cover any work, contractual or voluntary, performed over a period of time. If there was a sufficient or “intrinsic” link between the payment and performance of the task this would count as normal remuneration. Therefore, when the workers worked overtime voluntarily, they would perform the same tasks as they would under their employment contracts. It wouldn’t necessarily make a difference either if there was an absence of an intrinsic link, it would be a question of fact for the tribunals to decide from the facts of the case.
Therefore, as an employer, the overarching principle accumulated from the extensive case law states that compulsory as well as voluntary overtime should now be included in workers’ holiday pay.