Holiday pay: should it include voluntary overtime?
In the latest development on the issue of how statutory holiday pay should be calculated, the Employment Appeal Tribunal (EAT) has clarified that payment for voluntary overtime that is normally worked falls within the concept of “normal remuneration”.
In this particular case, a number of employees claimed that their holiday pay calculation should include voluntary overtime, out-of-hours standby pay, call out payments and mileage allowances which were paid for work related travel.
The general principle is that statutory holiday pay should be calculated in accordance with pay that is “normally received”. Until this EAT decision, the following principles had arisen as a result of case law on the issue of whether to include overtime in the calculation of statutory holiday pay:
- “guaranteed overtime” – where even if the employee is not called on to work overtime, the employer is liable to pay the employee for it – should be included in the calculation as it is covered in “normal working hours”
- “non-guaranteed overtime” – where the employee is obliged to work overtime if required, but the employer is not obliged to provide overtime or pay in lieu – should also be included in the calculation as it is required by the employer and therefore intrinsically or directly linked to the worker’s work
- “voluntary overtime” – where the employee cannot be required to work overtime and the employer does not have to provide it – was a grey area and the position was less clear. It has been open to employees to claim that it is part of normal remuneration if a settled pattern has developed over a sufficient period of time to justify the label of “normal” pay, but there was no definitive case law for guidance.
The EAT gave a reminder of the principle that normal (not contractual) remuneration must be maintained in respect of statutory holiday so as not to discourage workers from taking leave. For a payment to count as normal, it must have been paid over a sufficient period of time. This will be a question of fact and degree. Items which are not usually paid or are exceptional do not count; items that are usually paid and regular over time may do so.
Therefore, where a pattern of overtime, though voluntary, extends for a sufficient period of time on a regular or recurring basis to justify the description “normal”, the Tribunal may decide that it is sufficiently regular and settled that payment for the overtime is “normal remuneration” and it should therefore be included in the calculation for statutory holiday pay.
In this case, the Tribunal had been entitled to find that some of the employees undertook regular voluntary overtime, so that it fitted within the definition of normal pay. Other employees had the option of voluntary overtime but worked it very rarely and for those employees, the Tribunal was entitled to find that the overtime was not part of normal pay. The same reasoning will apply to other payments, such as standby allowances and mileage allowances.
On the facts of this particular case, the Tribunal was entitled to conclude that some of the voluntary overtime payments were part of normal remuneration. However, this will not always be the case – for example, where voluntary overtime is sporadic. Employers should therefore review whether employees are regularly working voluntary overtime in order to assess whether that overtime pay has formed part of the employee’s “normal remuneration”. This will be a question of fact and degree in each particular case.
It is worth remembering that the principle only relates to four weeks’ statutory holiday pay under the Working Time Regulations which implements the Working Time Directive, not to the 1.6 weeks additional leave. The calculation of pay for additional holiday and contractual holiday will depend on the terms of the contract of employment.
8 September 2017
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