Court rule on whether voluntary overtime should be factored into holiday pay

A recent landmark ruling by the Court of Appeal is set to have a significant impact on how many employers calculate holiday pay going forwards after it was confirmed that voluntary overtime would need to be factored into holiday pay under certain circumstances. 

The case in question, East of England Ambulance NHS Trust v Flowers, involved claimants who worked as part of the ambulance service. These individuals regularly participated in non-guaranteed overtime, which they were contractually obliged to work and voluntary overtime, which they were not required to work but could so if they wished.  Upon noticing discrepancies in their pay the claimants brought proceedings for unlawful deduction of wages against the Trust, as both forms of overtime had been omitted from holiday pay calculations.

At the initial employment tribunal (ET) it was ruled that the terms and conditions of the employees’ handbooks had entitled them to have their non-guaranteed overtime factored into holiday pay, but not their voluntary overtime. The ET based this on the fact that voluntary overtime was not compulsory, followed no clear pattern and was not regularly depended on by the Trust.

The claimants chose to appeal this decision on voluntary overtime with the Employment Appeal Tribunal (EAT), who after looking at the facts of the case overturned the previous decision of the ET.  In their judgement the EAT outlined that the overarching principle of the European Working Time Directive dictated that ‘normal remuneration’ should be maintained during annual leave. 

Unhappy with this ruling, the Trust proceeded to appeal the decision with the Court of Appeal (CoA) on the basis that voluntary overtime was not compulsory under the claimants’ contracts of employment. However, the CoA dismissed the appeal and agreed that voluntary overtime should be included in the claimants’ holiday pay. They added that it is not necessary for overtime to be compulsory under the contract to qualify as normal remuneration, but instead the work has to be ‘sufficiently regular’ and ‘settled’.

Unfortunately further guidance was not provided on how to determine when voluntary overtime qualifies as ‘sufficiently regular’ or ‘settled’ and this will depend upon the facts of each case, such as the regularity of the overtime and the length of time over which it has been done. Nevertheless, this decision will now become the binding case law that employers must refer to for any future disputes relating to voluntary overtime and holiday pay.

With this in mind, employers have a choice to make. Whilst a best practice approach would be to review existing methods of recording overtime to ensure voluntary overtime is included in holiday pay going forwards, others may be willing to continue withholding voluntary overtime from holiday pay and wait to see whether this decision is appealed to the Supreme Court.

Either way it should be noted that the need to factor in voluntary overtime will only apply to the four weeks of annual leave provided by the EU Working Time Directive. This is not required for the additional 1.6 weeks that is provided as a minimum under UK law and it is essential that employers consider this when working out holiday pay calculations to avoid paying staff incorrectly. 

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