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22nd August 2016

Overtime and Holiday Pay

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The calculation of holiday pay continues to be a grey area and there have been a number of tribunal cases in the recent past which have not helped to give clarity to employers.

The CJEU in BA v. Williams confirmed that for the duration of annual leave (the four week period of statutory leave provided for by the Working Time Directive, and not the 1.6 additional week provided for under UK law), any payment which is ‘intrinsically linked’ to the performance of tasks under the contract of employment should be taken into account when calculating holiday pay.

We then had the EAT’s decision in Bear Scotland Ltd. v. Fulton and another, which said that overtime should be included if it is normally received by the worker and is a payment directly linked to the work. This decision has been the subject of appeals and was listed for hearing in the Scottish EAT on 13 April 2016. The outcome is not yet known.

Lock v. British Gas confirmed that commission payments should be included also as they were a payment intrinsically linked to the worker’s performance. This was also subject to an appeal and was heard in the Court of Appeal on 11 July 2016, with judgment reserved.

In Mansfield v. Leeds Teaching Hospitals NHS Trust, the Leeds tribunal reiterated that compulsory or non-guaranteed overtime had to be included. In reaching its decision, the tribunal relied on Patterson v. Castlereagh Borough Council. In that case, the parties had conceded that voluntary overtime was capable of being included in holiday pay and therefore the Court of Appeal in NI was not asked to consider this point. It simply stated that it is ‘a question of fact for each tribunal to determine whether or not voluntary overtime was normally carried out by the worker and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion in the calculation.’

Following on from Mansfield there was a tribunal decision on whether purely voluntary overtime should be included in holiday pay calculations.

White & Others v. Dudley Metropolitan Borough Council involved 56 claimants who were invited to work on a Saturday on a purely voluntary basis. They also elected to go on standby every four weeks to deal with emergency call-outs and repairs. The tribunal looked at whether the voluntary overtime had become part of their ‘normal pay’. It found that the employees’ on call-rota and voluntary overtime had been in place for such a period, and with such regulatory, that it had become part of their ‘normal work’ and their ‘normal pay’ and should therefore be included in holiday pay. The pattern of work was found to be very well established.

Payment of overtime has to be made for a sufficient period of time for it to qualify as ‘normally received’. The decision inMansfield did set out a useful test which was (a) whether at the material time it was in the minds of the parties that overtime was intended to last for the foreseeable future, albeit of indefinite duration; (b) did the employer intend to provide overtime; and (c) did the worker intend to be willing to work that overtime? This is helpful in determining whether there is a settled pattern of work. However, the case law does not, rather unhelpfully, define what period of time would be regarded as ‘sufficient’. In Mansfield it was just said to be ‘neither occasional nor insubstantial’. 
We now have a further tribunal decision which had to address voluntary overtime: Brettle & Others v. Dudley Metropolitan Council. The Claimants in this case regarded their overtime as an extension of their working week as it was carried out on a regular basis, albeit not every week. It was found that regular voluntary overtime (that which is not occasional, unusual, rare or ancillary) can be considered ‘normal pay’ for the purposes of calculating holiday pay. Whilst each case will turn on its own facts, the focus is on the regularity of the payments.

Whilst these decisions are persuasive, they are not binding on other tribunals. In the meantime, employers should consider whether to take a risk adverse approach or await an EAT decision on the point. In any event, employers would be well advised to review and consider payments (to include overtime) that are made to staff, their frequency and whether they are intrinsically linked to the work being performed.

For more information please visit our Employment Services Page or contact Sam Murray-Hinde on 020 7400 6574 or click here to email Sam.