Inclusion of Voluntary Overtime in Holiday Pay
On the 31st July 2017, the Employment Appeal Tribunal (EAT) handed down its latest decision on the holiday pay ruling and held that voluntary overtime pay should be included when calculating holiday pay.
The EAT referred to previous Court of Justice of the EU decisions which highlighted that workers should receive their ‘normal pay’ when they take a holiday. The EAT stated that workers should not be deterred from taking paid annual leave and any reduction in salary is presumed to act as a deterrent.
Does all voluntary overtime have to be included in holiday pay?
No, ad hoc or irregular overtime does not have to be included in holiday pay. However, if any overtime that ‘extends for a sufficient period of time on a regular and/or recurring basis’ and has become part of the worker’s ‘normal pay’ this must be included.
There is no statutory definition of what amounts to ‘normal pay’ and employment tribunals will continue to hear arguments about whether overtime (of whatever nature) has become part of an employee’s normal pay.
Where an employees’ normal pay varies each week, employers are required to work out their holiday pay by averaging their pay over the previous 12 weeks. This calculation will now have to include voluntary overtime (and any other regular payments or allowances linked to work). However, this requirement only relates to the first 20 days’ (four weeks) leave taken in each holiday year (calculated pro-rata for part-time staff) not to additional statutory leave (e.g. the further mandatory eight days), or contractual leave in excess of this. The four weeks leave derives from the Working Time Directive entitlement.