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Date
04 August 2017

What's normal about normal pay?

Holiday pay has been a contentious issue in the workplace for some time. In the past, the court has considered whether an employee's holiday pay should include allowances (such as "time away from base" allowance), commission and compulsory overtime. A question that had not yet been answered was whether voluntary overtime should be taken into account when calculating holiday pay, until now…

In the very recent Employment Appeal Tribunal case of Dudley Metropolitan Borough Council v Mr G Willetts and others, the Claimants (a lead group acting for 56 employees of the Council) were employed by the Council in a number of different roles including electricians, plumbers, and general repair operatives. Most of the claimants had set contractual hours of 37 hours per week with a further contractual right to 2-4 hours' overtime. They also had the opportunity to volunteer to perform additional duties outside of their contractual duties and would be paid overtime in respect of those hours. The additional duties were entirely voluntary and the employees could drop on and off rotas as they wished.

Workers are entitled to be paid "normal pay" when on holiday. Here, the claimants argued that the voluntary overtime they normally worked should be counted when calculating holiday pay. The Council thought that "normal pay" should be much more narrowly defined as being pay for the work someone is required to do under their contract.   

The EAT held that "normal" when assessing any "normal pay" means what most people think it means – regular and not extra-ordinary. To count as "normal" it must be usually paid, over a sufficient period of time. This will be a question of fact and degree. In this case, the EAT held that the voluntary overtime was regularly worked and therefore that payment for the overtime was "normal remuneration" for the purposes of calculating holiday pay. When working out holiday pay, the EAT said employers should base their calculations on the average over a 12 week reference period to allow for fluctuations.  

This does not come as a huge surprise to many commentators because this has been the direction of travel for some time. The courts have long held that employees should not be put off taking holidays because they will be disadvantaged financially as a result. This is in line with European jurisprudence: the right to be paid annual leave is a particularly important principle of EU social law and is enshrined in the Charter of Fundamental Rights of the EU.

The judgment will be quite useful to those in the gig economy. In some cases workers in the gig economy are on short, fixed hours contracts and all other time spent working could theoretically count as overtime. As such, before this judgment, it was arguable that all of the excess hours outside of the contractual hours would not have been relevant for the purposes of calculating holiday pay. This is no longer the case. 

Employers need to take note and may wish to consider reviewing their overtime arrangements, being mindful that any voluntary overtime on offer may now be factored into holiday pay. In light of the removal of tribunal fees, employers are at a heightened risk of claims from disgruntled employees and should act to address any issues.