Which elements of ‘pay’ should be included in any holiday pay calculation has been at the core of a number of cases since the introduction of the right to paid holiday in 1998. The premise is simple: a worker who takes annual leave should be paid the same amount for that leave as they would have received had they been at work. The practicalities of this calculation have proved more controversial.
In the recent case of Flowers v East of England Ambulance Trust, the Employment Appeal Tribunal (EAT) had to consider whether to include voluntary overtime in the Trust’s holiday pay calculation. The claimant employees were all employed by the Trust in a range of roles concerned with the provision of ambulance services. The issue was whether their holiday pay should take account of overtime falling within two categories: non-guaranteed overtime (also known as shift overrun payments which related to times when there was a requirement to continue working so that patient care was not compromised) and wholly voluntary overtime. It was eventually conceded by the Trust that the non-guaranteed overtime should be taken into account, but they challenged the inclusion of purely voluntary overtime.
The tribunal found that the voluntary overtime did not fall within ‘normal remuneration’ as it was not work that the employees were obliged to do under their contracts. Since the tribunal’s decision on this issue, the EAT found in the case of Dudley Metropolitan Borough Council v Willetts that such payments should fall within ‘normal remuneration’.
In Dudley the EAT found that the overarching principle is that normal remuneration must be maintained in respect of annual leave to ensure that by taking leave, a worker does not suffer a financial disadvantage which may deter them from exercising that right. Payments in respect of overtime (whether that is compulsory, non-guaranteed, or voluntary) constitute remuneration. For a payment to count as ‘normal’ it must have been paid over a sufficient period of time – this will be a question of fact and degree. The indication given, while not precise, was that voluntary overtime worked one in every four or five weeks would be sufficiently regular to count as ‘normal’ and should be included.
The Trust tried to argue that Dudley was wrongly decided and in any event could be distinguished on the facts. The EAT in Flowers however, found that the decision in Dudley was right and should be applied in this case – voluntary overtime should be included if it falls into the category of being paid over a sufficient period.
While this confirms the earlier EAT decision of Dudley, it does not neatly answer all the issues for practitioners, but what is clear is that:
- Guaranteed overtime should always be included in holiday pay calculations;
- Non-guaranteed overtime, which is compulsory when offered, should also always be included;
- Purely voluntary overtime, where there is no obligation to offer it and no obligation to do it if offered, should be included if it is sufficiently regular or recurring so as to qualify as ‘normal’.
The key should always be the overarching principle that workers should not be out of pocket when they take holiday. While some employers may be concerned that workers will seek to manipulate overtime shifts prior to taking holiday to maximise their payments, there seems little evidence to date that this is happening.
Nick Hurley is a partner and head of the employment group at Charles Russell Speechlys LLP