Employers should include payments for voluntary overtime in holiday pay if they are paid regularly, repeatedly or over a sufficient period of time to amount to normal remuneration.
Overtime and holidays
Holiday pay is calculated with reference to normal working hours and previously this was only considered to include guaranteed compulsory overtime. However several recent cases have looked at whether non-guaranteed or voluntary overtime should also be included. In Fulton v Bear Scotland the Employment Appeal Tribunal (EAT) held that those working regular non-guaranteed overtime were entitled to have this reflected in their holiday pay.
In the recent case Flowers and Ors v East of England Ambulance Trust the EAT confirmed that voluntary overtime should also be included in calculations for holiday pay.
The overarching principle is that holiday pay must correspond to “normal remuneration” and that workers should not suffer a financial disadvantage by, or be deterred from, taking leave.
Overtime must be worked regularly to be included in holiday pay calculations, and while the EAT provided little guidance on how to establish whether overtime was regular, it did say that overtime worked one in every four or five weeks would be sufficient.
Statutory holiday entitlement
Under the Working Time Regulations (WTR), statutory holiday entitlement is broken into 2 parts: 4 weeks under Regulation 13, and an additional 1.6 weeks under Regulation 13A. In both Bear Scotland and Flowers, the EAT considered that overtime only needed to be taken into account for calculation of 4 weeks’ holiday pay under Regulation 13. There is no set rule as to which 4 weeks of holiday this will apply to, but employers may want to include a term in their employment contracts that Regulation 13 holidays will always be taken first.
General position on overtime
Overtime is time worked in addition to a worker’s regular hours. It can be voluntary or compulsory and paid or unpaid so it is good practice to set out the details of overtime in an employment contract or staff handbook.
If overtime is voluntary, there is no obligation on the worker to accept it and no obligation on the employer to offer it.
Compulsory overtime can be split into two categories – guaranteed or non-guaranteed. Guaranteed overtime means that the employer is obliged to offer it and the worker must accept it. When overtime is non-guaranteed the employer does not have to offer it, but if it is offered, the worker must accept it.
While there is no legal right for employees to be paid for working overtime, if it is unpaid, employers must ensure that the worker’s hourly rate does not fall below national minimum wage. An employee’s contract should make it clear whether overtime will be paid or unpaid and if paid, whether any enhanced rate of pay will be given. Workers can also be offered time off in lieu.
WTR Limits and overtime
The limits to working hours which are set out in the Working Time Regulations (WTR) also apply to overtime. The WTR mean that workers:
- Must not work more than an average of 48 hours per week, unless they have agreed to opt out
- Must have at least 1 day off each week or 2 in a fortnight
- Must have 11 hours’ uninterrupted rest in a 24 hour period
- Must have at least a 20 minute break when working for longer than 6 hours
Comment
Christine Jamieson, a paralegal in our Employment team commented:
“Payments for voluntary overtime must be included in holiday pay calculations if they are paid regularly, repeatedly or over a sufficient period of time to amount to normal remuneration. Assessing what amounts to normal remuneration will depend on reviewing the facts and circumstances of each case.”
