Voluntary overtime should be included when calculating Statutory Holiday Pay

19 September 2017

The Working Time Regulations 1998 set out the rules for calculating statutory holiday pay and under these Regulations, a worker is entitled to receive their normal remuneration when taking holiday.

We have previously reported to you on the case of Bear Scotland & others v Fulton, in which the European Court of Justice (‘ECJ’) ruled that overtime that a worker is obliged to work should be included in ‘normal remuneration’ when calculating statutory holiday pay, and the more recent decision of Lock v British Gas Trading Limited where the ECJ decided that commission should also be included in calculations of holiday pay.

There has now been a further significant development in the calculation of holiday pay following the Employment Appeal Tribunal's decision in Dudley Metropolitan Borough Council v Willetts & others, in which it determined that voluntary overtime pay, out-of-hours standby payments and call-out payments should also be included in a worker’s ‘normal remuneration’.

The Claimants in this case were 56 council workers in a variety of roles, such as quick response operatives, electricians, roofers, plumbers and operations officers. They worked under a contract of employment for 37 hours a week and a number of them had a contractual right to work hours of voluntary overtime. Furthermore, once every four to five weeks, the employees were on an on-call register to attend out-of-hour calls outs.

When calculating the employees’ holiday pay, the Council did not include the payments the employees received for the voluntary overtime and on-call work. The Council did not consider that these payments fell within the definition of ‘normal remuneration’ for the purposes of calculating holiday pay.

The employees argued that the voluntary overtime and on-call work should be included in their holiday pay calculation and as it had not been included, they had been underpaid. The employees’ trade union, Unite, calculated that the shortfall per individual employee could range from £350 to £1,500 per year, depending on the total amount of overtime worked. Therefore, by excluding the voluntary overtime, the Council was putting the employees at a financial disadvantage when exercising their right to take annual leave.

The employees took their claims to the Employment Tribunal and were successful. The Employment Tribunal ruled that the voluntary overtime and on-call payments were linked to the performance of the employees’ duties and were carried out often enough to be classed as ‘normal remuneration’ for the purposes of calculating holiday pay. The Council were ordered to reimburse the employees for the underpayment of holiday pay.

The EAT upheld the decision of the Employment Tribunal.

Mrs Justice Simler DBE confirmed that ”once the claimants commenced a working shift of voluntary overtime or a period of standby duty or callout, they were performing tasks required under their contracts of employment even if there was also a separate agreement or arrangement. The payments made were all directly linked to tasks they were required to perform under their contracts of employment and, once those shifts or standby periods began, they were in no different position from an employee who is required by his contract to work overtime or be on standby or attend call outs”.

We have been waiting for a ruling on voluntary overtime for a number of years following the earlier decisions of Bear Scotland and Lock given that voluntary overtime is considered popular amongst employers and employees. This new ruling in Dudley means that employers will now have an even clearer understanding on what to include when calculating an employee’s holiday pay in order to avoid underpaying an employee whilst they are on annual leave and ultimately placing them at a financial disadvantage.

By Emily Jones

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