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Should you include voluntary overtime in holiday pay?


Since we wrote this blog, there have been more court and tribunal decisions on holiday pay – we discuss these in our blogs:

Users of Workbox, the employment team’s online HR site, can also access continually updated information and detailed FAQs in our dedicated holiday pay section.

In some cases, definitely. In others, the answer is disappointingly unclear: ‘maybe’.

Workers with no normal working hours

If a worker has no ‘normal working hours’, you should calculate their statutory holiday pay as an average of all remuneration in the previous 12 working weeks. This will include, for example, commission and overtime, even if the overtime is voluntary.

Workers with normal working hours

For workers with ‘normal working hours’, the position is less clear. Consider the different types of overtime:

  • Guaranteed, compulsory overtime i.e. even if the employee is not called on to work, you must pay for it. You must include this when calculating statutory holiday pay (in respect of all 5.6 weeks).
  • Non-guaranteed, compulsory overtime i.e. an employee is obliged to work overtime if required, but you don’t have to provide overtime or pay in lieu of it. The Employment Appeal Tribunal (EAT) in the case of Bear Scotland decided that this should be included when calculating statutory holiday pay (in respect of the 4 weeks’ statutory leave available under EU law). In reaching this decision, the EAT had to insert new wording into UK legislation, to bring it into line with European case law. However, as reported in our previous blog an appeal has been lodged in another case (Lock v British Gas) which argues that the EAT in Bear Scotland ought not to have done this. So the position is not yet settled.
  • Voluntary overtime i.e. you cannot insist that an employee works it and you don’t need to provide it. This was not covered in Bear Scotland so the position is even less clear. The Northern Ireland Court of Appeal (in Patterson v Castlereagh Borough Council) recently decided that there is no reason why voluntary overtime should not be included when calculating statutory holiday pay but whether it is actually included in any case will depend on the particular facts. The Court suggested that voluntary overtime will only be included if it is ‘normally’ carried out by the worker and is an ‘appropriately permanent’ feature of the worker’s remuneration. The case has now gone back to the tribunal to hear evidence of the overtime actually worked so it can determine whether this should be included in Mr Patterson’s holiday pay. Tribunals in Scotland, England and Wales are not obliged to follow this decision, but it may add weight to arguments that voluntary overtime should be included.

Voluntary overtime in practice

Although the holiday pay litigation is ongoing, it does appear likely that the courts will ultimately decide that at least some voluntary overtime should be included when calculating statutory holiday pay. At this stage, it would make sense for employers who offer overtime to review their policies and the amount and regularity of overtime carried out by employees. You should then take legal advice on the best approach to managing this going forward. If you need assistance with this, or any other aspect of holiday pay, please contact us.

Other issues relating to holiday pay

The case law on holiday pay has thrown up questions not only in relation to whether overtime should be included, but also other elements of pay, such as commission, bonuses and allowances. As at June 2015, nearly 21,000 claims for holiday pay had been lodged in Scotland, involving around 321 employers. If you want advice on how best to manage your own situation or you consider you are at risk of claims, please contact us.

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