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 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 case involved 56 council employees who worked as electricians, plumbers, roofers, storemen, operations officers and quick response operatives. They were contracted to work for 37 hours a week and many had a contractual right to do two to four hours of overtime. But, crucially, they were also given the option to perform additional duties such as out-of-hours standby shifts or attending call-out, which they racked up as paid voluntary overtime.
This voluntary overtime was not reflected in the claimants’ holiday pay and so, backed by the union Unite, the employees took the matter up at the Employment Tribunal (ET). Judges found in favour of the employees in the first instance and Dudley Metropolitan Borough Council appealed.
The EAT discerned that the work performed during overtime was the same tasks as under the individual’s contract of employment. They said that excluding these payments leaves workers at a financial disadvantage and could deter them from taking the holiday they are entitled to as they could potentially earn more if they continued working.
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.
We have all been calculating statutory payments incorrectly
Whilst this decision cannot compete with the recent employment tribunal fees ruling in terms of consequences for employers, it does go against over 20 years of established practice and will come as a shock to most employers.
According to the Employment Appeal Tribunal (EAT) in a recent ruling (University of Sunderland v Drossou), the calculation of a week’s pay for the purposes of statutory payments, such as redundancy payments, should include employer pension contributions. This is contrary to longstanding established practice.
Establishing the value of a week’s pay is relevant for, in particular:
- Statutory redundancy payments
- Maximum possible unfair dismissal compensatory awards
- Compensation under TUPE for a failure to inform and consult
- Compensation, known as a ‘protective award’, for failure to comply with information and consultation obligations where 20 or more employees are at risk of redundancy.
It has been longstanding practice to base a week’s pay on gross wages only and not to include employer pension contributions on the basis that they are not received directly by the employee but are paid into the pension fund.
But the matter had never been considered at EAT level until now. The EAT said that a week’s pay should include a week’s worth of employer pension contributions. It reviewed the precise wording of the Employment Rights Act and found that as pension contributions are no less a reward for services than wages, they should be included in the calculation of a week’s pay.
Employers will need to immediately alter how they calculate various statutory payments. In some cases a week’s pay for statutory purposes is capped, such as for statutory redundancy payments, currently capped at £489. So for those employees already earning more than the cap, this will not change anything.
But for those payments where a week’s pay is not capped, such as the unfair dismissal compensatory award limit, compensation payable under TUPE and in relation to mass redundancies (bulleted above), employers could suddenly find themselves having to pay awards of greater value than previously anticipated.
This could be particularly onerous for employers who contribute towards a defined benefit (final salary) pension scheme. The average employer contribution to such schemes is around 20%, so for some employers this could have a real impact.
Injury to feelings – what is it worth?
After years of uncertainty, the Court of Appeal has finally provided us with guidance on the compensation levels for injury to feelings in unlawful discrimination cases and increased the award by 10%.
The recent case of De Souza v Vinci Construction has resolved the question of whether the uplift on general damages in the civil courts (following the personal injury case of Simmons v Castle) should apply to injury to feelings and personal injury awards in the employment tribunal.
An award for injury to feelings is separate from an award of compensation for financial loss. Instead, it compensates the individual for the hurt and upset that they have suffered as a result of the discriminatory act or acts.
The tribunal has discretion as to what to award and will consider a number of matters including the individual’s personal characteristics, any relevant medical condition, panic attacks, stress, or loss of confidence, the nature of the individual’s job and the impact of the discrimination and whether the employer sought to make amends.
In the leading case of Vento, the Court of Appeal set clear guidelines for the amount of compensation to be given for injured feelings and set out three bands of potential awards. In light of De Souza, these bands have been increased to the following:
- Lower band (one-off or isolated incidents of discrimination) - up to £6,600
- Middle band (serious cases not meriting the highest band) - £6,600 to £19,800
- Top band (for the most serious cases) - £19,800 - £33,000.
The most important thing for employers to take away from the above is that unlike unfair dismissal, an award for discrimination has nothing to do with how much the individual earns and is not subject to a statutory cap. Ultimately it’s up to the tribunal to decide appropriate levels of compensation, as BAE found out earlier this year when they were forced to stump up £360,000 for a single sexist remark made to a former employee; BBC News - BAE Systems: Sexist comment £360k payout 'excessive'.
While the award in this particular matter is being contested, it goes to show how exposed employers can be in discrimination cases. The 10% uplift on the injury to feeling award only serves to heighten that exposure. It’s important that employers are armed with accessible policies and provide sufficient staff training to help prevent these types of claims and are able to immediately respond and tackle the problem from the outset should a complaint be raised.