Holiday pay and voluntary overtime guidance


19 June 2019

This article considers holiday pay and voluntary overtime guidance following East of England Ambulance Services NHS Trust v Neil Flowers and others [2019].

Background

Article 7 of the Working Time Directive (WTD) provides that member states must ensure that workers have the right to at least four weeks' paid annual leave. Although the WTD does not specify how statutory holiday pay should be calculated, it has been interpreted as requiring ‘normal remuneration’. In Williams and others v British Airways plc (2011), the ECJ held that ‘normal remuneration’ includes not only basic salary, but also remuneration which is "intrinsically linked to the performance of the tasks which he is required to carry out under his contract of employment and in respect of which a monetary amount, included in the calculation of his total remuneration, is provided"

Bear Scotland v Fulton and others (2013) decided that non-guaranteed overtime (that is, overtime that is compulsory for the employee if the employer requires it) must be included in the calculation of holiday pay. However, it did not definitively deal with voluntary overtime. In Flowers, the Court of Appeal considered whether the calculation of employees’ holiday pay should include non-guaranteed and voluntary overtime.

Facts

A group of NHS employees brought claims against the Trust for unlawful deductions from wages, on the basis that their holiday pay had not been calculated to include either non-guaranteed (compulsory) or voluntary overtime. An employment tribunal ruled that their holiday pay should include the non-guaranteed overtime, but not the voluntary overtime.

The Employment Appeal Tribunal (EAT) ruled that the claimants’ holiday pay should be calculated to include both non-guaranteed and voluntary overtime (see our previous summary of the EAT decision). The Trust appealed.

Court of Appeal decision

The court has upheld the EAT’s decision, finding that under the terms of the claimant’s contracts they were entitled to have their holiday pay calculated to include both types of overtime. In addition, the court agreed with the EAT’s conclusion that under the requirements of the WTD, voluntary overtime was capable of forming part of the claimants' normal remuneration and therefore included in the calculation of holiday pay. 

Consequences

This decision confirms the EAT’s conclusion that voluntary overtime is capable of forming part of normal remuneration for the purposes of calculating holiday pay under the Working Time Directive. Whether or not it actually does in respect of each individual worker will depend on an analysis of the pattern of overtime worked, to decide whether it is sufficiently regular for it to amount to ‘normal remuneration’.  Although this decision was reached on the basis of the ECJ’s interpretation of the Working Time Directive, it is likely that tribunals will apply the same interpretation to the Working Time Regulations 1998.  For those employed under NHS Agenda for Change terms and conditions, they will be able to rely on the court’s confirmation that as a matter of contractual interpretation, voluntary overtime is included in the calculation of overtime. Subject to any further appeal, this is likely to be a costly decision, particularly for NHS employers.

In practice

This case is also relevant to non-NHS organisations, both in the public and private sector. What ‘sufficiently regular and settled’ means in practice will be for Tribunals to decide on a case-by-case basis, based on the individual facts. Distinguishing between regular and irregular overtime will not always be straightforward. On a practical level, it might be simplest for employers to routinely include all overtime payments in their holiday pay calculations, on the basis that the administrative costs (and potentially legal costs too) of differentiating between individual employees' overtime patterns could be too high, or complex. However, this may be an unappealing decision to take commercially.  

By way of general comment, please do note that the requirement to include overtime, commission and other payments in workers' holiday pay only apply to the first four weeks - and employers can revert to basic pay for the remaining holiday.

Future developments 

In April 2020, for workers with variable remuneration, the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 will increase the reference period for calculating an average week’s pay from 12 weeks to 52 weeks. This will require employers to review their holiday pay calculations again.  

The content of this article is for general information only. For further information please contact Laura Herbert or another member of Birketts' Employment Law Team.

Authors

Laura Herbert

Solicitor

+44 (0)1473 406394

Liz Stevens

Professional Support Lawyer

+44 (0)1603 756474

+44 (0)7580 355031

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