HM Insights

Including voluntary overtime in holiday pay calculations – the rules for employers

In August 2017 we reported on a decision of the Employment Appeal Tribunal (EAT) in Dudley Metropolitan Borough Council v Willetts, which considered whether overtime worked on a voluntary basis should be included in holiday pay calculations. The EAT took the view that payments for voluntary overtime that is 'regularly and consistently worked' should be included when calculating holiday pay.

The Willetts case was criticised for failing to provide guidance for employers on what would constitute a regular and consistent pattern of overtime. When the recent case of East of England Ambulance Service NHS Trust v Flowers and others came before the Court of Appeal involving largely similar issues, it was hoped that further clarity would be provided.

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The Facts

The case involved claims brought against a local NHS Trust by various members of ambulance crew who regularly worked two different types of overtime; voluntary and compulsory 'over-run'. The Claimants regularly undertook voluntary overtime at consistent times and on consistent days.

The Claim

The Claimants brought a claim in the Employment Tribunal (ET) for unlawful deduction of wages, arguing that overtime should be taken into account for the purpose of calculating holiday pay. The ET held that compulsory overtime should be included, however, that voluntary overtime should not.

The Claimants appealed to the EAT contending that the voluntary overtime should have been taken into account, and the Trust cross appealed against the finding that non-guaranteed overtime was relevant for holiday pay purposes.

The EAT allowed the Claimants' appeal and dismissed the Respondent's cross appeal. The Respondent thereafter appealed to the Court of Appeal who agreed with the EAT and found that the Claimants have a contractual entitlement to have voluntary overtime taken into account for the purpose of calculating holiday pay.

Holiday pay under the Working Time Directive

Although this case was decided on a contractual point, the Court of Appeal considered it necessary to deliver judgment on the calculation of holiday pay required by the Working Time Directive given the potential impact this could have on the wider workforce.

The Court relied heavily on the Willetts case and referenced the judgment in that case throughout. The position is clear from the legislation: a worker should be encouraged to take all the leave to which they are entitled and any financial disadvantage likely to have the opposite effect should be avoided.

The Court was keen to distinguish between cases involving exceptional and unforeseeable overtime and those, such as the present case, involving broadly regular and predictable overtime. Where overtime constitutes a 'constant component' of an employee's pay, it should be taken into account for holiday pay purposes. What can be considered 'normal' overtime is a question of fact and degree to be decided by the ET on a case-by case-basis.

What should employers do to meet their obligations?

While the judgment of the Court of Appeal is helpful in confirming the Willets position, little is provided in terms of further guidance. It is clear is that where overtime is a constant component of pay it should be taken into account for holiday pay purposes, however no further guidance has been provided to deal with the situation where the overtime, although regular, is not consistent, other than to say that it should be dealt with on a case-by-case basis.

Without further guidance it is difficult for employers to be certain that they are continuing to meet their obligations in this regard. However they should be alert to the importance of ensuring that all necessary components of pay are included in their calculations of their workforce's holiday pay. Careful consideration should also be given to how and when overtime is allocated to best safeguard their position.

This article was co-authored by trainee lawyer Deborah Alexander