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Voluntary overtime must be included in holiday pay

The question of “normal pay” is one that employers have grappled with for some time, especially when it comes to working out what staff should be paid for their holidays. For people on a fixed annual salary, the answer is easy – a week’s holiday pay equals how much a worker gets for a week’s work. But where an employee’s weekly pay varies, such as employees who work overtime and are paid for it, particularly in sectors like care and construction, the concept of “normal pay” becomes blurred.

Traditionally, many employers have avoided the issue and chosen not to include regularly worked voluntary overtime in holiday pay and pay it based on minimum contractual hours. This has left employees out of pocket and despite a number of challenges in the tribunals, the guidance from judges has been unclear. Until now.

A recent landmark Employment Appeal Tribunal (EAT) decision in the case of Dudley Metropolitan Borough Council v Willetts concluded that employees who regularly work voluntary overtime should have these payments included when calculating their holiday pay.

The ruling will certainly be welcomed by employees who are paid overtime with “sufficient regularity” to be considered a part of their “normal pay.” Employers, however, will now have to start taking to steps to make sure they comply with this approach and establish how often overtime needs to be worked for it to be taken into account. With tribunal fees recently abolished, employers may face a swathe of claims from disgruntled employees if they don’t keep up with this change.

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