Does pay for regular voluntary overtime need to be included in the calculation of holiday pay? Yes, says the Court of Appeal in a decision which confirms several prior Employment Appeal Tribunal (EAT) decisions that the entitlement to holiday pay under the Working Time Directive (WTD) must include pay for regular voluntary overtime. As we explain below, the outcome is more complex in practice as tribunals will now have to decide, on a case-by-case basis, whether a particular pattern of voluntary overtime is sufficiently regular and settled to fall within the category of regular voluntary overtime.
Under article 7 of the WTD, EU member states must ensure that workers have the right to at least four weeks’ paid annual leave. The WTD does not expressly specify how statutory holiday pay is to be calculated. However, it is well established that holiday pay should equate to ‘normal remuneration’. Normal remuneration has been interpreted to include not only basic salary but also remuneration which is intrinsically linked to the tasks the worker regularly performs.
The EAT held in Bear Scotland v. Fulton and others that compulsory non-guaranteed overtime (i.e., overtime that is compulsory for the employee if the employer requires it but which is not guaranteed to be provided) must be included in the calculation of holiday pay. The EAT also held, in Dudley Metropolitan Borough Council v. Willetts and others, that holiday pay should correspond to normal remuneration so that workers should not be discouraged from taking their annual leave entitlement; in other words, pay during holidays should not be below the rate a worker would expect to receive had they been working. For a payment to be treated as normal, it should have been made over a sufficient period of time on a regular or recurring basis.
The calculation of holiday pay has also been considered by the European Court of Justice (ECJ), which held in Hein v. Albert Holzkamm GmbH & Co. KG that remuneration received for overtime does not, in principle, form part of normal remuneration. However, where the employment contract requires the worker to work overtime on a broadly regular and predictable basis then that overtime should be included in the calculation of holiday pay. Continue Reading