Voluntary Overtime and Holiday Pay

The Employment Appeal Tribunal (EAT) has ruled in the case of Dudley Metropolitan Borough Council v Willetts (and others) that voluntary overtime must be included in holiday pay.

What this means for your business?

This is a significant case as it is the first time the EAT has heard cases relating to purely voluntary overtime. Previous case law has strongly hinted that voluntary overtime which is undertaken on a regular basis should be included in holiday pay, but we now have this clear guidance from the EAT.

Whilst many employers have previously adopted a “wait and see” approach to voluntary overtime, this is no longer an option. The EAT has made it clear that overtime that “extends for a sufficient period of time on a regular and/or recurring basis” will need to be included. However, in circumstances where the overtime is genuinely ad hoc or irregular, it does not have to be included.

We are now likely to see cases looking at whether overtime payments are sufficiently “regular and settled” to require inclusion in holiday pay.  The EAT cautioned that each case must be decided on its own facts, and it is up to individual employment tribunals to determine the issue.

What holiday pay will the decision affect?

This case is clear that it only applies to the first 20 days’ leave taken in each holiday year.  Employers can therefore exclude voluntary overtime from additional statutory days (e.g. the further eight days) or contractual leave (any days in excess of 28).

Is there a possibility of backdated claims?

Previous case law on holiday pay has decided that employees who have a break of more than three months between payments are unable to argue that they have suffered a series of deductions. The requirement to include regular overtime only relates to 20 days’ leave. Therefore, if there is more than a three month gap between the 20th day of leave in a previous year and the 1st day of the new holiday leave being taken, the cycle will be broken.

This decision may however leave employers open to backdated claims for the current holiday year.

If you have any questions or concerns about how this may affect you or your business please do get in touch with a member of our employment team. 

Key Contact

Fabio Grech – Partner

029 2034 5511