Employment law: Overtime and holiday pay calculations

EMPLOYEES in most practices are contracted to work a set amount of hours in any week, but the reality is that when cover is required for periods of sickness or annual leave, staff regularly work additional hours. So is it fair or even illegal that annual leave calculations do not reflect actual working time or pay?

A recent landmark case before the Employment Appeal Tribunal (EAT) addressed this issue and held that any payments for voluntary overtime should be included in holiday pay calculations if they are regular enough to constitute "normal pay".

In the case – Dudley Metropolitan Borough Council v Willetts and Others – five employees brought a tribunal claim against their employer on behalf of 56 other employees. The workers were employed to repair and maintain council houses and were contracted to work a set number of hours (usually 37). In addition they undertook extra voluntary duties, such as working out-of-hours standby shifts, attending call-outs and voluntary overtime. These voluntary payments, however, were excluded from calculations of holiday pay and the workers argued that this was contrary to the Working Time Regulations 1998 (WTRs).

The EAT ruled in the workers’ favour, confirming that amounts over and above normal pay should be included in calculations if they are ‘intrinsically linked’ to performance of the contract. The tribunal accepted that staff could “drop on and off the rotas to suit themselves whether day by day, week by week, month by month or permanently” and additional work was “almost entirely at the whim of the employee, with no right to enforce work on the part of the employer”.

This case has provided employers with some clarity over the position of voluntary overtime, although what constitutes “regular” is still rather muddy! We suggest that practices may want to look back every 12 weeks to overtime records to enable them to calculate additional holiday pay for those employees that work regular overtime.

OTHER RELEVANT CASES

A few other recent cases are also relevant to the area of holiday pay. In Williams and Others v British Airways plc, the European Court of Justice held that holiday pay should include not just basic salary but remuneration linked to the performance of tasks that a worker is required to carry out in their contract of employment. In this case the calculations must include ‘flying pay’ and ‘time away from base sums’. Whilst this may not be relevant to a medical or dental practice it further demonstrates the complexity in this area.

More helpful guidance came in Lock v British Gas Trading when it was decided that sales commission should also be included in overtime calculations. Mr Lock, a sales consultant with British Gas, claimed in an employment tribunal that he was owed money on the basis that his holiday pay did not reflect what he would have earned from commission. On top of his basic pay, he was paid monthly commission which fluctuated based on his sales and this was to be included in the calculations.

The case of Fulton v Bear Scotland concerned overtime that a worker is obliged to work when available but which is not guaranteed by the employer. The EAT held that such “non-guaranteed compulsory overtime” constitutes part of the worker’s normal remuneration and as such should be included in calculating the worker’s holiday pay.

WATCH THIS SPACE

The position of voluntary overtime remained unclear until we had the ruling of Dudley, however the EAT cautioned that each case must be determined on its own facts and it is up to employment tribunals to determine whether or not overtime payments are sufficiently regular and settled to require inclusion in holiday pay. So watch this space for further clarity as more cases come through the courts.

If you need any further guidance on this complex area of employment law, then please contact one of the employment law advisers at MDDUS.

Janice Sibbald is an employment law adviser at MDDUS