The question of whether holiday pay should be calculated to include overtime has been one that is largely discussed within Employment Law. With the law being somewhat unclear when addressing the issue, it has fallen to employers to either determine for themselves whether overtime should be included in the calculation or to case law which has been equally conflicting.
However a recent case that has been heard in the Court of Appeal has made the position somewhat clearer.
In the case of Flowers v East of England Ambulance Trust, the employees were all employed by the East of England Ambulance trust in a range of roles relating to the ambulance service. The question that was put to the Tribunal was whether their holiday pay should take account of overtime that they have worked. Their overtime fell into two categories. Firstly, overtime which was not guaranteed and was also known as a shift overrun payment. This related to times where there was a requirement to continue working so that patient care was not compromised. The second was overtime that was genuinely voluntary.
The employees’ annual leave was calculated on the basis of what they would have received had they been at work.
This would be based on the previous three months at work or any other reference period that may have been locally agreed and only included the first category of overtime. The employees brought claims for unlawful deduction of wages as they believed that both types of overtime should have been included for the purposes of accrual of annual leave. The Employment Tribunal agreed that if they were required to work past the end of their shift.
This was overtime that formed part of their normal remuneration and so should be considered with regards to holiday pay. However they held that, as volunteering for additional shifts was not a contractual obligation, this should not factor into such calculations.
However, on appeal, the EAT ruled that voluntary overtime should be taken into consideration but that this should be assessed on a case by case basis to determine whether the voluntary overtime was regular enough to be considered part of their normal remuneration. This means that if employees volunteer for overtime regularly this should be included the calculation of holiday pay.
Lord Justice Bean, who delivered the leading judgement in this case stated that “voluntary overtime should be counted when calculating holiday pay if it is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration.”
Whilst this decision seems to depart from that of Hein v Albert Holzkamm GmbJ made by the European Court of Justice last year, which suggested that no overtime should be included in holiday pay calculations due to “its exceptional and unforeseeable nature”, the Court of Appeal stated that it was not intended to undermine this principle. The instant case reflects regular and thus broadly predictable overtime, as opposed to exceptional and thus unforeseeable overtime which was considered in Hein.
Whilst this is a clear indication that any regular overtime should be taken into account when calculating holiday pay, there is still room for further questions with regards to what would be considered sufficient and regular enough to warrant inclusion. There is no clear indication of the amount of overtime or the regularity of overtime that must be done in order to be included. The result of this is that, although both employers and employees may now be aware that “regular and sufficient” voluntary overtime should be a factor that is included in calculations of holiday pay, there is still the requirement to determine whether in fact this voluntary overtime has been regularly and sufficiently worked.
Points to note for Employers
It is important that Employers are aware of this and know that, should they have an employee who regularly works extra hours voluntarily, these hours should factored in to any calculations relating to holiday pay. Employers should consider whether their employees’ work patterns would be successful in demonstrating regular and sufficient voluntary overtime, and perhaps even consider ways to manage the amount of voluntary overtime undertaken by individuals
