Calculating holiday pay

Tessa Brown

Calculating holiday pay used to be a fairly simple calculation, based on the hours and rates as set out in the employment contract. However, a recent employment tribunal decision in Dudley Metropolitan Borough Council v Willetts held that voluntary overtime can amount to ‘normal remuneration’ for the purposes of calculating holiday pay. This will mean an increase in the complexity of the calculation and the payments due.

In other words, if your employees are working overtime on a regular and recurring basis, over a sufficient period of time, they need to be compensated for the overtime they would have missed out on by being on holiday.

Unfortunately the employment tribunal didn’t specify what constituted sufficiently regular and recurring so employers will have to form their own view on this.

In the case mentioned above, a number of council workers would voluntarily work additional hours in one out of every four or five weeks, as they had put their names on an on-call register. These payments were deemed to be regular and recurring and therefore needed to be factored into the holiday pay calculations.

This decision emphasises the principle that holiday pay should be based on ‘normal remuneration’, so as not to discourage workers from taking what holiday they are entitled to.

However, this requirement only relates to the first 20 days’ leave taken in each holiday year, as mandated by the working time directive, so any statutory leave in excess of this can be paid at a rate excluding voluntary overtime.

Given the recent abolition of employment tribunal fees and the current media coverage surrounding employment (think Uber etc.), there is the increased risk of litigation for employers if this judgement is not taken into account.

If you wish to discuss how this ruling may affect you then please get in touch with me or another member of the employment solutions team on 0330 024 0888 or employment.solutions@larking-gowen.co.uk