EAT rules that holiday pay should include entirely voluntary overtime

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In a landmark ruling by the Employment Appeal Tribunal (EAT), employers have been told that they must now include entirely voluntary overtime in holiday pay.  In considering Dudley Metropolitan Borough Council v Willetts and others EAT/0334/16 the EAT has essentially said that, whilst each case is determined on its own merits, if entirely voluntary overtime (i.e. overtime that there is no obligation or duty on the employee to perform) is considered to be regular, then it is also considered to be normal. This was the conculsion reached by the original Employment Tribunal (ET) and upheld by the EAT.

Wasn’t this the case for a while now?

Since the rulings in Bear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT it has been long expected that all overtime should be included in calculations of holiday pay, but in fact the case law until now only concluded on the inclusion of overtime where there was an element of obligation on the employee to perform it.

This is a significant ruling, and probably one that was required to offer some clarity in this recently confusing element of employment legislation.

So do I have to change?

First of all it is important to remember that EAT rulings influence and set case law, so essentially this becomes the law. So if you are only basing holiday pay on contractual hours and pay, but you have staff performing any kind of regular overtime, you will need to change. The safest route is to accrue holiday pay on a 12-week average. You will need to consider all payments you make to an employee, and if they are “regular”, include them in holiday pay.

If you need an opinion on whether you should change, please do not hesitate to ask us. 1st Step Solutions are always willing to offer a view to our clients when it comes to compliance!

 

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