Holiday Pay and Voluntary Overtime

Holiday Pay and Voluntary Overtime. The Court of Appeal in Northern Ireland has held that voluntary overtime is not necessarily excluded from the calculation of holiday pay for the purposes of the Working Time Regulations 1998 (as derived under the EU Working Time Directive).

At the Employment Tribunal stage, it was held that voluntary overtime should not be included in the calculation of holiday pay, taking the approach that the Bear Scotland case either implicitly excluded voluntary overtime, or it allowed Tribunals to decide to exclude it.

The key issue in question was whether the Tribunal had made a mistake by finding that, as a point of principle, voluntary overtime could not be included, or whether the Tribunal had decided that the appellant had factually failed to establish that the overtime formed part of his “normal remuneration”.

The case was remitted to the Tribunal to hear further evidence of the overtime actually worked by the employee within a suitable reference period. Once this is determined, the Tribunal will decide as a question of fact whether the voluntary overtime should be included in this particular case.

Summary

The Court of Appeal found that there was no reason why voluntary overtime should not be included as part of the holiday pay calculation, and that the Tribunal had been in error in this regard. It found that it was a question of fact for each Tribunal to determine whether the voluntary overtime in question was “normally carried out by the worker”. If so, it should be included when calculating holiday pay.

Practical Points

Given that this is a Northern Ireland decision, it is not binding on Tribunals in England and Wales, although it will be persuasive.

The difficulty for employers putting a policy in place in relation to voluntary overtime, is that it seems Tribunals will look at whether an employee is entitled on a case-by-case basis.

However, where employees habitually work overtime, even if they are not required to do so, it is probable that they are entitled to holiday pay calculated by reference to this. This could have a high impact on employers, as voluntary overtime is likely to be more common than other forms of overtime. It would be prudent for employers to put policies in place to restrict the levels of overtime that employees may carry out, to try to control potential holiday pay costs.

A further difficulty is determining the correct reference period to calculate what the pay should be as no definitive guidance has been given on this point. Employers could use the 12-week period which is set out in legislation relating to other pay calculations, or alternatively the 12-month period suggested by the Advocate General in the Lock case. Again, it appears that a case-by-case basis will be the most appropriate (but also the most administratively difficult).

Finally, it is important to remember that where employers are obliged to include overtime in holiday pay calculations, this only applies to four weeks of the employee’s holiday pay granted under the EU Working Time Directive (rather than the full 5.6 weeks prescribed by the Working Time Regulations 1998).

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