Should voluntary overtime be included in holiday pay?

Alex Pearce, employment law specialist at Pinney Talfourd in Essex advises on whether you should include voluntary overtime in your holiday pay calculations.

The issue of how to calculate holiday pay has rarely been out of the news in the last few years with a steady stream of case law on the topic. We turn our attention to an issue on which there has been little guidance: voluntary overtime.

Alex Pearce, employment law specialist at Pinney Talfourd in Essex advises on whether you should include voluntary overtime in your holiday pay calculations.

Compulsory overtime

In Bear Scotland Ltd v Fulton [2014] the Employment Appeals Tribunal (EAT) decided that employers have to take into account compulsory non-guaranteed overtime payments when calculating holiday pay in respect of the four weeks’ annual leave given by the Working Time Regulations 1998 (WTR). So, if you do not guarantee overtime but your employee must work it if required, then you will need to include payments for this in their holiday pay.

But the Bear Scotland case did not give us any answers on what to do when it comes to voluntary overtime. Voluntary overtime is work that you do not have to offer and which your employee can turn down if they do not wish to work it.

Voluntary overtime

A new case, albeit only an employment tribunal case, which is not actually binding on other tribunals or the EAT, has given some guidance on whether voluntary overtime should be included when you work out holiday pay. Pending any appeal there may be against this decision, it does give an indication of how tribunals are likely to approach the issue. In White and others v Dudley Metropolitan Borough Council [2016], the 56 claimants worked as skilled tradespeople, maintaining the council’s stock of social housing. They were invited to work on a Saturday on a voluntary basis and they also agreed to be on a standby rota, every four weeks, for emergency call-outs and repairs. Many of them gained another £725 every month for the week they were on standby.

Calculating holiday pay

The council calculated holiday pay based on basic pay only; they did not include overtime pay. The judge decided that the voluntary Saturday overtime and the standby or call-out overtime had both been in place for such a period of time, and were sufficiently regular, as to become part of the workers’ normal work. This meant that this should become part of their normal pay too and be included in holiday pay in respect of the first four weeks of annual leave under the Working Time Regulations.

It might be hard to decide what patterns count as regular enough to make the overtime regular. In the White case, the voluntary overtime was particularly regular and well-established but, until there is further guidance, if you can see a clear pattern, it is likely to be advisable to include the voluntary overtime. We are not talking about just the odd few sessions of voluntary overtime; if the overtime is ad hoc, based on the White case, it is unlikely to amount to normal work and so is unlikely to be included in the definition of normal pay. 

Action points for Employers

• Review your policies and the amount and regularity of voluntary overtime being done.
• If the employee does voluntary overtime so regularly that payment for it becomes a normal feature of their pay, you will need to include it in holiday pay.
• If you wish to wait until we have further case law on this point until you include voluntary overtime in holiday pay, or until you are sued by an employee, consider setting aside a reserve fund so that you are prepared for any successful challenges.

Commission and holiday pay

In Lock v British Gas Trading Ltd [2016], the EAT held in February 2016 that commission payments should also be included in the calculation of holiday pay. British Gas appealed against the decision and this was heard in the Court of Appeal on 11 July 2016. We anticipate that it will probably be a few months until we have the result. It may throw further light on not only how commission payments should be dealt with when it comes to working out holiday pay but also how other payments, perhaps including voluntary overtime, should be treated. This is an eagerly awaited decision.

MORE INFORMATION For more advice on calculating holiday pay, reviewing your employment policies or any other employment law matter, contact Alex Pearce, in our Employment Law Department on alex.pearce@pinneytalfourd.co.uk or call 01708 229444. This article was written by Alex Pearce our Employment Law Associate at Pinney Talfourd Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. The law may have changed since this article was published. This article is based on the law as at September 2016.