No break from the complexities of calculating holiday pay
An Employment Tribunal (ET) has held in the case of Brettle and others –v- Dudley MBC that an employer should include voluntary overtime worked by an employee when calculating holiday pay provided that it has become part of the worker’s normal pay.
So what’s complicated about that?
First, this judgment does not apply to all holiday leave. It only applied to holiday entitlements under regulation 13 of the Working Time Regulations 1998 (WTR) (i.e. four weeks annual leave) and not to additional holiday entitlements under either regulation 13A of the WTR (i.e. 1.6 weeks annual leave) or the employee’s contract.
Second, the employer must determine whether the overtime has been worked with such regularity that it has become part of their normal pay.
To understand the findings of this case it is helpful to set out the legal context and establish what the current requirements are when calculating holiday pay.
There are three types of holiday for workers:
- Leave under regulation 13 of the WTR, which implements Article 7 of the European Union’s (EU) Working Time Directive (WTD). Regulation 13 provides that a worker is entitled to the full-time equivalent of 20 days holiday per annum;
- Leave under regulation 13A of the WTR. This is the additional 8 days the government provides to workers to cover bank holidays in the UK; and
- Any extra holiday that a worker may be entitled to under his/her contract.
The payment for holiday provided for under either 13A of the WTR or the employee’s contract should be calculated by reference to s.221-224 of the Employment Rights Act 1996 (ERA). These sections provide that where an employee has normal working hours under his/her contract of employment, his/her holiday pay will be calculated on the basis of those contractual hours. This will therefore include, for instance, contractual overtime but not voluntary overtime.
Holiday pay for leave under regulation 13 of the WTR should be calculated in accordance with the WTD. Article 7 of the WTD provides that workers must be paid their normal levels of remuneration during their annual leave. This requirement therefore appears to be wider than merely contractual hours and to include other hours that are worked regularly.
Case law to date
A series of cases have grappled with interpreting this requirement, starting with the case of Williams and others –v- British Airways. In that case the European Court of Justice (ECJ) held that a worker on holiday is entitled to not only basic salary but also remuneration which is “linked intrinsically to the performance of the tasks which the worker is required to carry out under his/her contract of employment…”.
In Lock v British Gas an ET held (after referring the matter to the ECJ) that where a worker’s normal remuneration includes commission – that commission must be taken into account when calculating holiday pay. The basis for this decision was that the ECJ had concluded when the matter was referred to it that if the commission was not included the worker would be placed at a financial disadvantage and this may deter him from taking holiday, which was contrary to the overriding purpose of the WTD.
The position on whether non-guaranteed overtime should be included in holiday pay calculations was decided in the case of Bear Scotland Ltd and others –v- Fulton and others. In that case the Employment Appeal Tribunal (EAT) concluded that where an employee does not have a contractual right to overtime but if that work is available then the employee is obliged to perform it, the remuneration for that overtime should be included in holiday pay calculations.
Bear Scotland, however, did not deal with whether pay for purely voluntary work should also be included in holiday pay calculations, which was one of the key issues determined by the ET in the case of Brettle and others –v- Dudley MBC.
Brettle and others brought a claim for unlawful deductions from wages against Dudley MBC. The employees claimed that whilst they had received holiday pay, it was not at the correct rate as it should have included an amount for voluntary overtime, voluntary standby allowances and voluntary call-out payments (and mileage payments).
Five lead claimants were identified who worked different shift patterns, with different degrees of regularity to the overtime worked. They also participated, with different degrees of regularity, to rotas where they had to be on standby and might be called out.
Having considered the existing case law, the ET judge concluded that for leave under regulation 13 of the WTR, the question was not whether the work was ‘intrinsically linked to the contract’ but whether it had become ‘normal pay’ (i.e. that which is normally received). The judge went on to find that for the test claimants the voluntary overtime, standby, call out work and mileage that they had undertaken, had been carried out for such period and with such regularity so as to become part of their normal work. Accordingly it was part of their normal pay and should therefore be included when calculating their holiday pay.
Given the differing requirements to determine holiday pay entitlement under regulation 13 as opposed to regulation 13A and additional contractual leave, it is also necessary to determine the order in which holiday is taken. The ET Judge in this case concluded that the four weeks holiday provided under regulation 13 should be taken first and it was a matter for the employer to determine the order between regulation 13A and any contractual leave.
It should be noted that this is a first tier ET decision and is therefore not binding on other tribunals and courts. It is, however, a useful guide for employers as to how tribunals and courts are likely to determine such matters going forward. If as an employer you do not currently include remuneration for voluntary work in your holiday pay calculations it would be advisable to review this approach on a case by case basis in accordance with the principles set out above, to minimise the risk of any challenges.