It must be a good few months since I last did an article on holiday pay.  So to fend off those ‘working time’ withdrawal pangs, I will tell you about the recent decision in the case of Dudley Metropolitan Borough Council v. Willetts.

The workers in this case were plumbers, electricians and other tradespeople, all employed by Dudley Council.  In addition to their normal working hours (which were about 37 hours per week), they would routinely be offered the chance to work overtime.  It was entirely up to them whether they signed up for these extra hours, although many employees regularly did so.

Unsurprisingly, when these workers went on holiday, they were only paid for their core working hours, without any regard for the overtime they commonly worked.  The workers claimed that this broke employment laws relating to the calculation of holiday pay.

This case hinged on the question of whether the voluntary overtime pay could be said to amount to ‘normal remuneration’, for the purposes of working time laws.  The Council argued that it did not, as it was not connected with the tasks which the workers were specifically engaged to perform.  However, both the Employment Tribunal and the Employment Appeal Tribunal disagreed.  They found that the overtime payments were made with sufficient regularity as to amount to ‘normal remuneration’.  They also observed that if such payments were not made during periods of annual leave, workers might be discouraged from taking holiday at all, because of the financial ‘penalty’ that they would incur.  All in all, they concluded that the overtime payments should be factored in when calculating holiday pay.

The momentum has steadily (and seemingly decisively) built in favour of the worker in these cases.  It is now hard to see how any payments regularly made to workers in relation to the performance of their duties could lawfully be excluded from the calculation of holiday pay.  Nevertheless, we are still left with some residual problems: 

• Which payments fall the other side of the line and are paid sufficiently irregularly as to fall outside the definition of ‘normal remuneration’?  For example, what about annual bonuses (whether discretionary or otherwise)?   
• How should employers go about factoring in these additional payments, when calculating holiday pay?  Existing laws suggest that employers should average out the worker’s pay over a 12-week reference period.  In some cases, however, this simply doesn’t work; the period isn’t long enough fairly to reflect the worker’s overall level of ‘normal’ pay.  The ‘Taylor Review’ recently suggested extending the reference period to 52 weeks.  This sounds sensible, but will the Government follow up on this proposal and find the time to make it law?

All in all, whilst the legal landscape has certainly become clearer, there are still some significant ‘grey’ areas.  As a result, this is unlikely to be the last article I write on the subject of holiday pay.  So until next time…