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Holiday pay and Overtime

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by CronerTaxwise

There have been a number of cases over the past few years concerning the calculation of holiday pay and whether this should include overtime and commission. It has previously been decided that normal pay has to be included in holiday pay.

The Employment Appeal Tribunal (EAT) has now decided in Dudley Metropolitan Council v Willetts and others, that purely voluntary overtime must be included in holiday pay where this is normally worked. This includes overtime where the employee decided by themselves to put their name down to work extra hours without any requirement to do so.  This decision affects the first 4 weeks of annual leave in a leave year and not the additional 1.6 weeks of leave that are granted under domestic legislation.

The EAT did not define normal but indicated it will be where a pattern of work extends for a sufficient period of time on a regular or recurring basis, for example, where voluntary overtime is paid in every pay packet over a sufficient period of time. Each case will depend on the facts and it will be for a tribunal to decide whether voluntary overtime is regular and settled.

As the highest decision on this matter, this EAT decision will be binding on all employment tribunals that are considering this issue. The case may be appealed to the Court of Appeal and, in this situation, any claims that are submitted will be stayed until a final outcome is decided.

Employees who feel they should have voluntary overtime included in their pay calculations are likely to now speak to their employers or their unions about having this included. Employees who wish to go to tribunal must make an unlawful deductions claim within 3 months of their last holiday. They can go on to claim back pay for a maximum of two years so long as there is not a break of more than 3 months between any holiday taken. A break of more than 3 months between holidays will break the chain of underpayments.

The removal of tribunal fees makes this decision more troublesome for employers as it’s likely to lead to an influx of claims from employees who have not previously received this payment in their holiday pay. Employers can “make good” a claim by paying any underpayment that has occurred in the past three months and then, going forwards, reduce the risk by including voluntary overtime in the holiday pay calculation.