Does voluntary overtime need to be included in holiday pay calculations?

What's been happening?

We know of a few English first instance tribunal decisions recently which have considered the question whether voluntary overtime should be included in holiday pay. The tribunals held that voluntary overtime ought to have been included. However it must be remembered that these judgments are not binding on any other tribunals and don't establish a legal precedent. Furthermore, cases regarding what should be included in holiday pay may often turn on their own particular facts.

There has been one case, Patterson v Castlereagh Borough Council, from the Northern Ireland Court of Appeal which has ruled to include voluntary overtime. Decisions from this court are not binding, though are likely to be considered as highly persuasive to Scottish tribunals.

However, the judgment in Patterson should be read with caution. Firstly, the employer’s legal representative had conceded that there was no reason in principle why voluntary overtime shouldn't? be included, so the decision was reached without the Court having the benefit of hearing any arguments from the parties. In particular, the arand gument that there was a lack of requirement to carry out voluntary overtime might distinguish it from guaranteed and non-guaranteed overtime to bring it outside the calculation was never considered. Secondly, despite the Court finding that voluntary overtime does constitute normal remuneration, it gave no guidance as to how it should be determined whether employees "normally carried out" voluntary overtime. Lastly, the court made clear that any decision on this point will depend on the specific facts of the case and taking into account the regularity and permanence of the overtime arrangement.

Out Of Office Holiday Pay Employer Law Employment Voluntary Overtime Scotland

Where does this leave us?

Despite there being legal decisions on these cases, in reality we are not much further forward as we do not have a binding precedent on this specific legal point. We do know that one of the first instance employment tribunal cases, Brettle v Dudley Metropolitan Borough Council, has been appealed to the Employment Appeals Tribunal, which, we believe, may be held in July this year.

What does this mean for employers?

Employers may decide to 'grasp the nettle' and start to include voluntary payments in their employees' holiday pay calculation. This might see off the risk of employees bringing successful claims, but there are a number of practical difficulties when deciding how to implement arrangements:

  • Should all voluntary overtime be included or only for employees who perform it with a certain degree of regularity?
  • Over what referencing period should the sums should be calculated?
  • Is it better to "roll it up", paying an additional percentage on overtime when it is carried out (as opposed to when the holidays are taken) or are there risks with that approach?

On the other hand employers may wish to wait and see if clarity is yet to come from the courts. The concern here will be that they may be building up a backdated liability for historical underpayments. There is now a two-year statutory cap on unlawful deductions claims, and employers will also want to keep in mind the most recent decision in the Bear Scotland case in making the assessment. In May 2017, the EAT confirmed that in Bear Scotland that in holiday pay cases there is a time bar on bringing an unlawful deductions claim if more than three months have passed since the relevant deduction. So if there is a gap of more than three months between deductions, it will break the chain and the tribunal won't be able to consider prior periods.

How we can help you

We can assist with advising on possible models to address this issue and the associated risks, whether you prefer to 'wait and see' or 'grasp the nettle'.

Also, any current claims against employers regarding holiday pay may be affected by this judgment. 

Get in touch

To discuss how this judgment affects your workplace, please contact one of our employment team.