Holiday and Overtime Pay - Know Your Entitlement

Over recent years there have been several important Employment Law Court decisions clarifying the rights contained within the Working Time Directive (WTD) specifically regarding calculation of holiday pay in circumstances where workers regularly perform overtime. The recent Court of Appeal decision in East of England Ambulance Service NHS Trust v Flowers has now approved an earlier Employment Appeal Tribunal (EAT) decision in the case of Dudley Metropolitan Borough Council v Willetts relating specifically to the including of voluntary overtime in holiday pay calculations.

Brief Background

The Courts and Tribunals have tended to identify three main types of overtime, namely:

1. Guaranteed overtime – employers are obliged to provide overtime and employees are obliged to work it.
2. Non-guaranteed overtime – employers are not obliged to offer overtime, but where they do, employees are obliged to work it.
3. Voluntary overtime – the employer is not obliged to offer overtime, but where they do the employee is not obliged to work it.

Several years ago, in the case of Bear Scotland v Fulton and Others it was confirmed that non-guaranteed overtime must be included in the calculation of holiday pay. However, this case did not definitively deal with the question of voluntary overtime and its relevance to calculation of holiday pay. In 2017 the EAT in the case of Dudley Metropolitan Borough Council v Willetts and Others held that holiday pay should correspond to “normal” remuneration so as to not discourage workers from taking annual leave. This was the overriding purpose of the Working Time Directive. In deciding the “Willetts” case, the EAT ruled that overtime must have been paid over a sufficient period of time on a regular or recurring basis for it to be included in the calculation of “normal” pay.In East of England Ambulance Service NHS Trust v Flowers, the Court of Appeal has approved the “Willetts” decision regarding the inclusion of voluntary overtime in these calculations.

Comment  

Although employers are advised to seek advice, some commentators have suggested that it may be simpler and more practical (and less risky) for employers to routinely include all overtime payments in their holiday pay calculations on the grounds that interpreting the position in individual cases may be simply too administratively burdensome and costly. Failure to include voluntary overtime may also increase the risk of inviting claims.

Pending further decisions of the Courts the status of voluntary overtime in this context is now clear (to a degree). Neither the Employment Appeal Tribunal or latterly the Court of Appeal provided any real guidance over what is actually meant by overtime paid for a “sufficient period of time” and on a “regular or recurring basis”. This may well be the next issue for the Appeal Courts to resolve in later cases. 

If you require employment law advice, please contact David Dixey on 01376 320456 or dd@holmes-hills.co.uk.