Correctly Calculating Holiday Pay

Voluntary overtime should be taken into account when calculating holiday pay, following the Employment Appeal Tribunal’s decision in Flowers v East of England Ambulance Trust.

The calculation of holiday pay is governed by two separate legal frameworks, the first is the Working Time Regulations 1998, and the second is the Working Time Directive.

We will focus on the Directive here, and the effect it has had on UK case law.

The Directive provides that workers must have at least four weeks paid annual leave a year. In the UK, workers also receive an additional 1.6 weeks leave a year (5.6 weeks in total).

The Directive doesn’t state how pay should be calculated for the four weeks leave it says all workers should have, but case-law which has applied the Directive in practice says such holiday pay should include not only an employee’s basic salary but also:

• Commission payments.
• Incentive bonuses.
• Compulsory overtime and voluntary overtime including overtime premiums, whether guaranteed or non-guaranteed.
• Payments that relate to seniority, length of service or professional qualifications.
• Productivity/performance bonuses.
• Shift allowances and premiums.
• Standby payments and payments for emergency call-out duties.
• Travel and other allowances that are treated as taxable remuneration…

…assuming they are paid regularly or repeatedly over a sufficient period of time.

What happened in the Flowers case?

In this case, the employees (Claimants) worked in the provision of ambulance services. An issue arose as to whether the calculation of their holiday pay should take account both categories of overtime that they worked, one being non-guaranteed overtime, and the second being voluntary overtime.

Non-guaranteed overtime related to when an employee was in the middle of carrying out a task which they had to see through to the end, despite having finished their shift. The employee was entitled to payment for this type of overtime.

In respect of voluntary overtime, however, none of the employees had been required or expected to volunteer for voluntary overtime and were completely free to choose whether or not to work it.

So, the Employment Tribunal held that the employees’ non-guaranteed overtime should be taken into account in the calculation of their holiday pay, but not their voluntary overtime.

What changed on appeal?

For a payment to be included in holiday pay, it must have been paid over a sufficient period of time.

On appeal, the EAT held that the voluntary overtime should have been taken into account in calculating holiday pay, as there was no basis to distinguish between non-guaranteed and voluntary overtime in the contract of employment/conditions of service.

Should you include voluntary overtime when calculating holiday pay?

Now is the time to review your contractual terms and conditions to ensure they are in line with this case and do not unfairly distinguish between different categories of overtime, which was the case in Flowers. If your employees regularly work voluntary overtime, it may now form part of their “normal remuneration” and should be included when you calculate their holiday pay under the Directive.

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