Voluntary overtime: when must it be included in holiday pay?

The Court of Appeal has confirmed in East of England Ambulance Service NHS Trust v Flowers that voluntary overtime must be included in holiday pay calculations for workers with normal working hours if it is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration.

The facts

A group of NHS employees brought employment tribunal claims for unlawful deductions from wages, arguing that the calculation of their holiday pay had failed to take account of both compulsory non-guaranteed overtime (worked to complete a task after the end of a shift) and voluntary overtime.

The claimants raised their claims on two bases: a contractual entitlement to have all overtime included in holiday pay calculations under the NHS terms and conditions of service; and a requirement to include overtime under the Working Time Directive.

Earlier case law

• When considering the 4 week EU annual leave period, the employment tribunal in Flowers decided that compulsory non-guaranteed overtime should form part of holiday pay calculations but that there was no obligation to include voluntary overtime payments.
• The Employment Appeal Tribunal in Dudley v Willetts found that voluntary overtime should be included if it is sufficiently regular to become part of a worker's 'normal pay'.
• When the Flowers case reached the Employment Appeal Tribunal on the voluntary overtime point it followed Dudley, finding that whether voluntary overtime payments are part of 'normal remuneration' (and should therefore be included in holiday pay calculations) will be a question of fact and degree - items which are not usually paid or are exceptional don't count, but those that are regular / recurring over a sufficient period of time may do so. The EAT referred individual claims back to the employment tribunal to decideon a case-by-case basis whether the voluntary overtime was sufficiently regular to form part of normal remuneration.

Court of Appeal decision

The contractual claims succeeded in the Court of Appeal: the claimants were found to have an entitlement under their terms and conditions to have voluntary overtime taken into account for the purposes of calculating holiday pay. Nevertheless the Court of Appeal went on to consider the position under the Directive because "Employers need to know whether the decision in Willetts was correct."

The Court of Appeal found that it was and:

• Confirmed that voluntary overtime should be included in holiday pay if the pattern of work is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration.
• Rejected the argument (made following comments in a 2018 European Court of Justice case called Hein v Albert Holzkamm GmbH) that for overtime pay to be included in the calculation of holiday pay the worker had to be required by their contract to work it (thereby excluding voluntary overtime). Taken in context, the distinction the ECJ had been making was between exceptional and unforeseeable payments on the one hand, and broadly regular and predictable ones on the other.
• Noted that the exclusion of voluntary overtime from the calculation of holiday pay would carry the risk of encouraging employers to set artificially low levels of basic contractualhours and to categorise the remaining working time as overtime (referring to zero hours contracts).
• Noted that excluding regular voluntary overtime could create a financial disincentive to taking annual leave, contrary to the purpose of the Directive.

In practice

The Court of Appeal has confirmed that voluntary overtime should be included in holiday pay calculations where it is sufficiently 'regular and settled'. What this means in practice will be for tribunals to decide on a case-by-case basis, based on the individual facts.

Drawing the line between regular and irregular overtime will not always be straightforward. Arrangements may not fall neatly into one category or the other, and may not be consistent throughout the year, or between different teams or individuals within the same team.

Find out more

Our earlier blog on Dudley v Willetts considered some of the wider issues in the holiday pay debate, including:

• Should we amend our holiday pay calculations now?
• Should we use a 12-week average to calculate holiday pay?
• Should we limit additional payments to the 4 weeks' EU leave?
• Will the holiday pay rules change after Brexit?

If you want to discuss any issues around holiday pay, please get in touch with your usual Brodies contact. Workbox users may also want to take a look at the dedicated page on holiday pay which sets out more detail on how to calculate the entitlement of workers with and without normal working hours.