One of the last remaining pieces in the jigsaw of what constitutes “normal pay” for the purpose of calculating statutory holiday pay was slotted into place by the Employment Appeal Tribunal on Monday when it confirmed that such calculations should include voluntary overtime.

Willetts and Others v. Dudley Metropolitan Borough Council is a claim for unlawful deductions from wages by five lead claimants in respect of 56 employees. The Employment Tribunal (see “Holiday Pay in the UK − the great unanswered question”) had previously found that “regular” voluntary overtime should be considered as part of a week’s pay for most of the lead claimants for the purpose of calculating statutory holiday pay. In its view, the payments were paid (for those individuals) with “sufficient regularity” to be considered a part of their normal remuneration.

Dudley MBC unsuccessfully appealed the decision to the EAT. The EAT rejected its suggested exclusion of payments for voluntary overtime work as an “excessively narrow interpretation” of normal pay, which could give rise to a “fragmenting of pay into different components to minimise levels of holiday pay”. In the EAT’s view, that would increase the risk of a worker suffering a financial disadvantage that might deter him from exercising the right to take leave, contrary to the underlying objective of the Working Time Directive. [As we know, the argument that it cannot have been a disincentive because the worker still took the holiday is not a runner here].

The European and UK courts have already established that non-guaranteed overtime and commission payments should be included when calculating pay for the EU Working Time Directive-derived four-week minimum holiday leave. It will come as no surprise to many that a similar approach has now been confirmed in relation to voluntary overtime. But that still leaves the question of exactly how you assess normal pay – what is “sufficient regularity” for these purposes? The EAT noted that whether a payment is “normal” is a question of fact and degree. It concluded that “a payment is normally made if paid over a sufficient period of time on a regular basis, say for one week each month or one week in every five weeks, even if it is not paid more frequently or even each week”. With respect to the EAT, however, being told that this is all a question of “fact and degree” is hardly helpful when you are inputting the payroll.

When faced with a claim in relation to what constitutes “normal pay” for the purposes of calculating statutory holiday pay, we would continue to advise employers to ask their Tribunal to consider the underlying question: “Has the employee been put at a financial disadvantage through going on the holiday for which the underpayment is claimed?” If he cannot get past that, we would say that issues of what constitutes normal pay, etc., should not arise. So take the EAT’s suggestion above that overtime will be sufficiently regular if it is worked, “say, one week each month”. If the employee takes leave in one of the other weeks that month, it is surely not logically correct to say that he should receive any allowance in respect of overtime he would clearly not have worked anyway. It might well be “normal pay” but that does not mean that the employee has lost it. What if the employee had worked consistent voluntary overtime over a few months to cope with a bulge in demand, but then took leave at a time after that bulge had subsided such that overtime was no longer required? Again, however regular the extra work before the holiday, it would seem to offend justice that the employer has to pay some allowance in respect of it for a time when no loss was suffered through the taking of the leave afterwards.

These are extreme cases and most will not be so clear cut, either as to regularity or amount, but for everybody’s sake there must be a line drawn somewhere. Otherwise there are simply too many moving parts for the employer to keep an eye on if it is to do anything but roll over altogether and wrap up even the most occasional or sporadic overtime earnings too. My view remains that the line in question is the establishment of loss – if you can show on a balance of probabilities that you would have done £X amount of voluntary overtime over the period you were away, it’s yours, but if you can’t, you should not expect me to pay you for not doing overtime you wouldn’t have done anyway.

It is also worth remembering that there is a two-year backstop period that applies to most unlawful deduction from wages claims, meaning that a Tribunal can only look back two years from the date of the complaint when considering unlawful deductions. The EAT also confirmed its May 2017 Bear Scotland decision that any gap of three months or more between unpaid EU Working Time Directive holiday leave breaks the series of deductions for the purposes of a claim in the Tribunal.

We have a national “Holiday Pay Taskforce” comprising some of the leading experts on this subject. If you would like to discuss any questions relating to holiday pay and the practical significance of what it means to your business, please speak to me or your usual contact in the Labour & Employment team.