Voluntary Overtime And The Calculation Of Holiday Pay

28th September 2018 by

Following on from the decision in Bear Scotland Limited and Others v Fulton and Others that payments for overtime which employees are required to work but which their employer is not obliged to offer them do count as ‘normal remuneration’ for the purposes of calculating a worker’s statutory holiday pay entitlement for the four weeks’ annual leave required under the EU Working Time Directive (WTD), the focus has shifted to whether or not payments for voluntary overtime should also be included in the calculation.

In Dudley Metropolitan Borough Council v Willetts and Others, the Employment Appeal Tribunal (EAT) ruled that where there is an intrinsic link between the payment for voluntary overtime and the performance of tasks required under the employee’s contract, it should be included within normal remuneration. However, the absence of such a link does not automatically exclude such a payment from the calculation. In the EAT’s view, where the pattern of work, though voluntary, extends for a sufficient period of time on a regular and/or recurring basis to justify the description ‘normal’, it is for the fact-finding tribunal to determine whether the work is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration for the purposes of calculating holiday pay.

In another case on this topic (Flowers and Others v East of England Ambulance Trust), heard by the Employment Tribunal (ET) before Dudley was decided, the claimants were all employed by East of England Ambulance Trust in a range of roles concerned with the provision of ambulance services. They claimed that their holiday pay should include non-guaranteed overtime in the form of shift overrun payments, which arose when they were obliged to complete a task they had begun before the end of their shift which overran that time, and also payments for voluntary overtime shifts, which employees could choose to work if they wished.

The ET held that their contractual terms and conditions entitled them to have their non-guaranteed overtime taken into account in the calculation of their holiday pay but not their voluntary overtime. The claimants appealed the ET’s decision.

In this case, the EAT could see no basis to distinguish between non-guaranteed and voluntary overtime. Both types of overtime involved the employee performing tasks required of them under their contract of employment. In rejecting the employer’s arguments that the facts in Dudley were not comparable and that the case had been wrongly decided, the EAT held that the decision was clearly right. The exclusion of payments for voluntary overtime normally undertaken by the worker in question would ‘offend the overarching principle’ of the WTD – i.e. that normal remuneration must be maintained in respect of the period of annual leave guaranteed under the WTD so that a worker does not suffer a financial disadvantage that could dissuade them from exercising their right to take their holiday.

In consequence, the claims were remitted for a case-by-case assessment of the annual leave pay owing to each employee calculated with reference to their pay over the three-month period prior to their leave, as per the relevant clause in their employment contracts.

If you have employees whose pay regularly includes overtime worked in addition to the normal working hours stated in their contract of employment, we can advise you of your obligations as regards the calculation of holiday pay. For further information on this topic please contact Allison Grant on 020 7822 4000 or email allison.grant@healys.com.