By Joanne Duck
FG Solicitors
EUROPEAN law states that workers must be provided with a minimum of 20 days paid annual leave – UK law provides a minimum of 28 days.
It is settled law that workers must receive their ‘normal remuneration’ during annual leave. The rationale is that they should not be discouraged from taking leave on the basis they will suffer a detriment.
The question as to what should be considered normal remuneration has been occupying tribunal time for the last few years.
For workers with no regular pattern of work, holiday pay is calculated using an average of the payments received in the 12 weeks prior to the leave period.
However, things are more complicated for workers with normal contracted hours because the question as to whether variable elements of pay such as overtime and commission payments (to name but a few), comes into play.
Case law has established that payments received for Compulsory Guaranteed Overtime must be included in holiday pay. This principle applies to the entire 28 days. Compulsory Guaranteed Overtime is overtime that an employer can force a worker to work, and for which a worker must be paid even if overtime is not provided.
Similarly, it has been established that payments for Non-Guaranteed Overtime must be included providing the overtime is regularly worked over a sufficient period. However, this is limited to the 20 days provided under European law. Non-Guaranteed Overtime is overtime that a worker is obliged to work if required, but which the employer is not obliged to provide.
The position in relation to voluntary overtime had not really been considered until the recent case of Dudley Metropolitan Borough Council v Willetts & Others (Willetts).
In this case, 56 employees with normal contractual working hours volunteered to participate in on-call rotas for which they received voluntary overtime payments, a standby allowance and a call-out payment if they were actually called upon.
These payments were not included in holiday pay and the position was challenged. The tribunal held that the additional payments should form part of holiday pay for the 20 days provided under European law as the payments were paid with such regularity to be considered normal remuneration.
On appeal, the EAT, which did not allow the appeal, stated that classification of pay regularly received as being attached to ‘voluntary’ work, should not be a barrier to it forming part of normal remuneration for holiday pay purposes. Otherwise an employer could artificially set low levels of basic pay and class everything else as voluntary overtime payments in order to avoid having to account for it in holiday pay.
The Willetts case has clarified the grey area regarding voluntary overtime by making clear that payments paid over a sufficient period of time and on a regular basis should be taken into account when calculating holiday pay.
However, the question as to whether payments have been paid over a sufficient period of time and on a regular basis is a question of fact and degree and still leaves some uncertainty that may be challenged.
If you are an employer and you believe you may be incorrectly calculating holiday pay, you run the risk of employment tribunal claims, particularly given the recent ruling against the legality of tribunal fees!
Employers can address this by taking into consideration the variable elements of workers’ pay when calculating payments for all future holidays. You may wish to split the payments into payments for the first 20 days annual leave and the remaining 8 days provided under UK law, or for simplicity, treat the entire 28 days in the same way. This will limit the exposure to risk as after 3 months the timeline for claims will be broken.
Alternatively, employers may want to consider making a one off payment to employees to compromise historic claims (using a legal Settlement Agreement) before adopting the approach outlined above to ensure any future claims do not arise.
If you would like more advice contact a member of our team on 01604 871143.
