NEWS & RESOURCES

Voluntary overtime and holiday pay calculations

Regular voluntary overtime should be included in holiday pay calculations.

In the case ‘East of England Ambulance Service NHS Trust v Flowers EWCA’, the Court of Appeal upheld the decision that for the purposes of calculating holiday pay, under the Working Time Directive (WTD), voluntary overtime pay should have been taken into account.

The Working Time Directive

The Working Time Directive 2003 (WTD) is EU legislation which requires member states to give full-time workers a minimum of 4 weeks paid annual leave. It is up to member states to create laws to determine how this should be implemented and how pay should be calculated. The laws which do this in Great Britain are the Working Time Regulations 1998 (WTR 1998).

The European Court of Justice (ECJ) have made it clear that the purpose of paid annual leave is to put the worker in a financial position which is ‘comparable to periods of work’. So, they should get their normal pay during this annual leave.

The Employment Rights Act

The Employment Rights Act 1998 does not specify what types of overtime there are, and therefore does not make clear which types should be considered as ‘normal’ working hours – which make is difficult to consider what ‘normal’ pay should be. However, it does say that normal hours should be either: a) the fixed number of hours worked, or b) (if higher) the minimum number of hours an employee is contracted to work. The latter should be taken to mean that at least guaranteed overtime should be included as part of someone’s normal working hours.

Employment Appeal Tribunal

In the Bear Scotland case, the Employment Appeal Tribunal (EAT) distinguished the following types of overtime:

  • ‘Guaranteed overtime’ which is work the employer is obliged by contract to offer as overtime, and therefore will be liable to pay for even if the employer has none available to offer at the time
  • ‘Non-guaranteed overtime’ which is work that the employer is not obliged to provide but which, if the employer offers it, the employee is contractually obliged to perform
  • ‘Voluntary overtime’ which is work the employer asks an employee to do but which the employee is free of any contractual obligation to perform (unless he agrees at the time to do so).

In this case, the employees did various jobs within the ambulance service and claimed that the calculation of their holiday pay should take into account any non-guaranteed overtime (such as when a shift has to overrun in order to finish taking someone to hospital), and the voluntary overtime that they often did.

The tribunal considered the Bear Scotland case, and ruled that the non-guaranteed overtime should be taken into account, but not the voluntary overtime.

This went to the EAT, who found that further to a case referred to as: ‘Willets’, and for the purposes of holiday pay under the WTD, normal remuneration should include any overtime which has been paid over a sufficient period of time on a regular and/or recurring basis – and that this is a question of fact. It also found that under the Agenda for Change NHS Terms and Conditions of Service, relevant NHS employees also have a contractual right to have their holiday pay calculated by reference to overtime – and this specifically includes voluntary overtime. They also considered the overarching purpose of paid annual leave as set out by the ECJ (see above). For all of these reasons it was found that voluntary overtime should also be included.

It then went to the Court of Appeal, whose ruling was published this month. They upheld the decision that voluntary overtime should have been included.

Further HR Guidance

The key learning points form this case are:  we know that voluntary overtime which extends over a sufficient period of time on a regular and/or recurring basis must be considered as ‘normal’ pay and must be included when calculating basic statutory holiday pay.

Employers will not be able to argue the fact that it is not contractually required as a defence. The only voluntary overtime that may not count toward normal pay, is any which is truly exceptional and unforeseeable (i.e. not the norm and not predictable). NHS employers bound by the NHS Terms and Conditions of Service (Agenda for Change) should note that their employees may also be able to bring a breach of contract claim if voluntary overtime is not included.

For practical HR support and advice call HR Solutions on 0844 324 5840 or contact us online to find out how we can help your business.

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