Holiday Pay Calculations - The Next Step

In the case of Dudley Metropolitan Borough Council – v – Willetts & Others the EAT has confirmed that regular voluntary overtime should be included in the holiday pay calculation. This follows a series of reasonably high profile cases which have clarified how holiday pay should be calculated.  

For the statutory minimum holiday entitlement employees should whilst on holiday receive “normal pay” and the earlier cases have clarified, for example, that compulsory overtime payments and other allowances should be taken into account in the calculation. In this case it was voluntary whether the employees put themselves forward for the overtime rota and the Employment Tribunal accepted that staff could “drop on and off the rotas to suit themselves, whether day by day, week by week, month by month or permanently” but if the employee remained on the rota (which there was no obligation to do) they were then obliged to carry out the overtime work. For this they received not only additional overtime pay but also call out payments, mileage and standby allowances. 

All cases are decided on the particular facts but in this case the Employment Tribunal which initially dealt with the case considered that the payment made for the workers’ voluntary overtime were “sufficiently regular to constitute normal pay”.  Following the Employment Tribunal’s decision the employer appealed to the EAT who on considering the case dismissed the appeal and held that where the pattern of work extends for a sufficient period of time on a recurring basis, to justify the description “normal”, voluntary overtime payments must be included in holiday pay calculations.

It should be remembered that this ruling only applies to the statutory minimum holiday and not to any additional contractual period of holiday where the employer could still argue that holiday pay will be calculated at the flat weekly wage. 

It has been clear from a number of non-binding Employment Tribunal decisions that this is the way the position was being interpreted but this is the first Appellant decision which is now binding on Employment Tribunals. 

Many progressive employers have already calculated holiday pay on the basis of what actually is the “normal pay” but there will be many employers who will need to change their policies as a result of this decision.