Voluntary Overtime included in Holiday Pay – How will this change impact Employers?

Last week we received news of an appeal that was taken to the Employment Appeal Tribunal (EAT) by Dudley Metropolitan Borough Council (“DMBC”) regarding holiday pay for employees who work overtime.

A large number of employees of DMBC worked a considerable amount of overtime above any stipulated in their contract of employment resulting in up to £6,000 of additional pay being received each year. The calculation for holiday pay for these employees was based purely on their base salary, meaning extra remuneration was not taken account of and the end result was them being out of pocket by up to £1,500 a year. Evidently, employees were not happy with this and raised the matter with their employer.

Following the concerns being raised with the Council, a case was taken to the EAT where it was argued that the overtime hours worked were on a voluntary basis and not a requirement of their employment therefore the additional remuneration paid for extra working hours should not be included in the holiday pay calculation.

On review of the case, the EAT ruled in favour of the employees. This was predominately on the basis that employees were carrying out duties required under their employment contract during overtime hours. Also included in this ruling was where employees were carrying out extra shifts under a separate agreement, but the duties required reflected those under their regular employment contract.

As a result of this, employers will now be required to take into account all remuneration including amounts relating to overtime hours in calculating their employee’s holiday pay. We would encourage that action is taken to ensure this change is being applied as soon as possible to prevent any concerns being raised by your employees. The Council have yet to decide on whether they will appeal the case.

If you would like any further information or assistance with how this will impact your business, please do not hesitate to contact us.