Should voluntary overtime be taken into account in the calculation of holiday pay and what does this mean for your business?

Yes, if it is sufficiently regular, held the Court of Appeal in East of England Ambulance Service NHS Trust v Flowers [2019] EWCA Civ 947.

A body of case law has established that, as well as basic salary, other regularly recurring payments (such as overtime and commission) should be taken into account when calculating statutory holiday pay as it amounts to “normal remuneration”.

A European Court of Justice decision, Hein v Albert Holzkamm GmbH, included comments which cast doubt on whether voluntary overtime should form part of “normal remuneration” for the purposes of calculating holiday pay.

The Court of Appeal in East of England Ambulance Service NHS Trust v Flowers considered Hein but clarified that voluntary overtime that was paid over a sufficient period of time on a regular and recurring basis should be taken into account when calculating holiday pay for the purposes of the Working Time Directive and, therefore, the Working Time Regulations 1998.

Comments

The Court of Appeal decision is consistent with the growing body of case law which provides that regularly recurring payments (including overtime, commission, allowances etc.) should be included in the holiday pay calculation for the purposes of the Working Time Regulations 1998 so as to not discourage workers from taking annual leave.

However, there will often be a fine line as to whether voluntary overtime is sufficiently regular so as to amount to “normal remuneration” and it may not always be clear whether employers need to factor it in to their holiday pay calculations.

If you would like any advice in relation to how your business calculates holiday pay and whether or not overtime/commission etc. should be included please contact our Employment team.