Voluntary overtime and holiday pay
In a nutshell
Voluntary overtime should be taken into account when calculating holiday pay holds the Court of Appeal
In Flowers and others v East of England Ambulance Service NHS Trust, the Court of Appeal (CoA) considered whether non-guaranteed and voluntary overtime pay should be taken into account by an employer when calculating holiday pay.
It held that it should, provided such pay was sufficiently regular and paid over a sufficient period.
Facts of the case
A number of ambulance workers brought claims in the Employment Tribunal (ET) for unlawful deductions from wages on the basis that the calculation of their holiday pay had failed to take account of overtime falling within two categories:
- “Non-guaranteed overtime” – taken when their shifts overran; and
- “Voluntary overtime” – when an individual volunteered to work extra shifts.
The argument advanced was that this overtime needed to correspond to “normal” remuneration and therefore be included in holiday pay.
The ET held that non-guaranteed overtime should be taken into account when calculating holiday pay, however voluntary overtime did not form part of normal remuneration.
On appeal to the Employment Appeal Tribunal (EAT), however, the EAT found that both non-guaranteed and voluntary overtime pay should be taken into account by an employer when calculating holiday pay. The EAT therefore remitted the claim back to the ET to consider whether each claimant had a pattern of voluntary overtime that was sufficiently regular and settled to be taken into account when calculating his or her “normal” remuneration.
The Court of Appeal Decision
On the Trust’s appeal to the Court of Appeal, Lord Justice Bean set out the position that voluntary overtime should be taken into account when calculating holiday pay (as part of normal remuneration) if it is sufficiently regular and settled.
Where do we go from here?
Following this recent decision, the position seems to be that overtime should be included when calculating a workers’ statutory holiday pay entitlement. The only exception would be occasional and infrequent overtime – so no matter what your contracts of employment say, this must genuinely be the case in practice.
Think about the “overtime” you are offering your workers:
- Is it compulsory such that it falls under “normal” remuneration and accrues holiday pay?;
- Is it voluntary but, in reality, seems to be offered and accepted, for example, for the same number of hours on the same day each week, in which case holiday pay would accrue?;
- Is it entirely ad hoc and infrequent, in which case holiday pay would not accrue?; or
- Is it actually additional hours of work, rather than true overtime, such as the hours which might be offered to a temporary worker (in which case, employers would have to consider the regularity of the overtime worked in calculating holiday pay)?
Over the past few years the word “overtime” has been used (both correctly and incorrectly) no matter what the situation, however it is crucial that employers now take action to determine what the true position is within their organisation.
Failure to get this right could result in an unlawful deduction from wages claim being brought against a company – individuals have been more ready to bring such claims following the abolition of employment tribunal fees in July 2017.
This bulletin contains general overview information only. It does not constitute, and should not be relied upon, as legal advice. You should consult a suitably qualified lawyer on any specific legal problem or matter.