In recent years there have been a number of high-profile cases before employment tribunal both in Northern Ireland and in Great Britain concerning how employers should calculate statutory holiday pay for the workers, in particular to what extent variable payments such as commission and overtime should be considered.
In the recent case of Dudley Metropolitan Borough Council v Willetts and others UKEAT/033416/JOJ, the Employment Appeal Tribunal in England and Wales held that voluntary overtime that is normally worked should be included when calculating an employee’s holiday pay.
The rules for calculating statutory holiday pay are set out in the Working Time Regulations (Northern Ireland) 1998, as amended, which implements the European Working Time Directive (WTD). The Working Time Directive requires that workers receive ‘normal remuneration’ when taking holiday entitlement and is intended to ensure that workers are not dissuaded from taking annual leave by receiving less than their normal pay during this time.
This requirement can cause problems where workers, in addition to their normal salary, receive variable payments, as a worker’s monthly pay is likely to vary and it is therefore not always clear what constitutes ‘normal remuneration’ for the purposes of calculating holiday pay.
In the case of Dudley MBC, Mr Willets, along with four other lead claimants brought claims for unlawful deduction of wages against Dudley Metropolitan Council (the Respondent). The employees involved worked as electricians, storemen, roofers, plumbers and operations officers. The majority of the employees were contracted to work 37 hours per week, in addition to having the right to work overtime. In addition to their right to work overtime, the employees also performed voluntary overtime and occasionally attended call-outs on behalf of the Respondent. However, the Council did not include payments for such when determining what is classed as ‘normal remuneration’ for the purposes of calculating holiday pay. The Claimants argued that as a result of this, their holiday pay had been unlawfully underpaid by the Council.
The Employment Tribunal found in favour of the employees and held that the payments for overtime were intrinsically linked to the performance of the employees’ duties and that they performed the duties with sufficient regularity for the payments to be considered ‘normal remuneration’. The Council appealed the decision to the EAT.
The EAT dismissed the Council’s appeal and confirmed that payments for voluntary overtime, call-outs or standby shifts must be included by employers when calculating ‘normal remuneration’, where the payments are received with sufficient regularity. Whilst the EAT confirmed that whether a payment is received regularly enough to be considered ‘normal’ is a question of fact and degree, rather unhelpfully it did not set out rules for deciding this.
The decision in Dudley MBC also touched rather significantly upon the issue of zero hours contracts. The President of the EAT, Simler J held that the exclusion of payments for voluntary work which is normally undertaken would amount to an excessively narrow interpretation of normal remuneration which would create the risk of employers setting artificially low levels of basic contractual hours and categorising the remaining working time as ‘voluntary overtime’. Simler J recognised that had the Respondent’s succeeded, the logical consequence would be that workers on low or zero-hour contracts would have no ‘normal remuneration’ and therefore no entitlement to paid annual leave.
Employers should seek to review the regularity with which a worker receives these payments to determine whether there is an identifiable pattern. In addition to this, employers should consider the total value of additional payments for voluntary and non-voluntary overtime over the course of the holiday year.
Employers are advised to seek professional legal advice where there is a regular and discernible pattern of payments or where the total value of the payments is sufficient to materially impact the worker’s holiday pay over the course of the year.
Maxine Orr is a Partner specialising in employment law in Worthingtons Commercial Solicitors and can be contacted on 02890434015