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News added on 08.07.2019

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Holiday pay

Holiday pay must include regular voluntary overtime

The Court of Appeal has confirmed that holiday pay under the Working Time Directive must include voluntary overtime that is sufficiently regular and settled. What does this latest decision mean for your holiday pay calculations?

In East of England Ambulance Service NHS Trust v Flowers 2019, Mr Flowers and his fellow ambulance workers sometimes undertook both compulsory, non-guaranteed overtime (when emergency shifts overran) and voluntary overtime (volunteering for extra shifts to cover for staff shortages), but none of their overtime was included in the calculation of their holiday pay. They brought claims for unlawful deductions from their holiday pay, relying on both the Working Time Directive (WTD) and the specific contractual wording on holiday pay contained in the NHS Terms and Conditions of Service, also known as Agenda for Change.

The employment tribunal accepted that compulsory, non-guaranteed overtime should have been included in the calculation of their holiday pay but rejected their claims to include voluntary overtime, but this latter finding was overturned on appeal to the Employment Appeal Tribunal. The NHS Trust then appealed to the Court of Appeal, which has now held that Agenda for Change creates a contractual entitlement for both compulsory, non-guaranteed overtime and voluntary overtime to be included in the calculation of contractual holiday pay. More importantly for non-NHS employers in both the public and private sector, the Court of Appeal also upheld the EAT’s earlier decision in Dudley Metropolitan Borough Council v Willetts and others 2017 that the four weeks of holiday pay under the WTD must include regular voluntary overtime pay in the calculation, and it will be for employment tribunals to determine on a case-by-case basis whether a particular pattern of voluntary overtime is “sufficiently regular and settled for payments made in respect of it to amount to normal remuneration”. The NHS Trust had already accepted that payments for compulsory, non-guaranteed overtime needed to be included in the holiday pay calculation under the WTD.

The key issue is therefore whether any voluntary overtime that a particular worker may work meets the threshold of being sufficiently regular and settled for payments made in respect of it to amount to normal remuneration. Whilst in some cases it will be obvious that voluntary overtime is regular and settled (and so must be included in the holiday pay calculation) and in other cases it will be clear that voluntary overtime is very occasional, exceptional or unusual (and so may be excluded from the holiday pay calculation), there will be many cases that unfortunately fall into the grey area in the middle. Ultimately, the issue will be one for an employment tribunal to determine on the particular facts of the specific case.

From a practical perspective, it might be easier for you to include all voluntary overtime payments in your holiday pay calculations rather than trying to differentiate between each individual worker’s specific overtime patterns, unless it’s obvious that all voluntary overtime worked is entirely exceptional or unusual. Do be aware though that this judgment only applies to the four weeks’ annual leave in the WTD (and contained in UK law in regulation 13 of the Working Time Regulations 1998 (WTR)), and not to the additional 1.6 weeks under regulation 13A of the WTR. However, in practice it might be administratively difficult for your payroll systems to differentiate between the two types of leave. If you do decide to take two different approaches for calculating WTD and additional holiday pay, make sure your employment contracts and holidays policy make clear that workers take their WTD annual leave entitlement first in each holiday year.

It isn’t yet known whether the NHS Trust will seek leave to appeal to the Supreme Court.

Finally, be aware that the reference period for calculating holiday pay is increasing from twelve weeks to 52 weeks from 6 April 2020.

You should assess each individual worker’s pattern of voluntary overtime to decide whether it’s sufficiently regular and settled for payments made in respect of it to amount to normal remuneration. If so, then the voluntary overtime pay should be included in your holiday pay calculations, but you only need to do this in respect of four weeks of annual leave in each holiday year. If voluntary overtime is exceptional, unusual or only occasional, you can disregard it when calculating holiday pay.

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