Many business owners naturally think that payments for voluntary overtime, as opposed to required overtime, don’t need to be included in holiday pay.
However, it’s important for employers to bear in mind that holiday pay is calculated based on an employee’s ‘normal pay’.
What we’re now seeing in court that when voluntary overtime has been carried out regularly, over a sufficient time period, judges are considering it to be a part of ‘normal pay’. In these cases, the overtime should have been included in the holiday pay calculation.
When does voluntary overtime count towards ‘normal pay’?
If the voluntary overtime is worked on a very ad-hoc basis then it’s likely that it won’t count towards normal pay.
If there’s an expectation that a certain amount of voluntary overtime will be offered and worked each week or month, and that payments for overtime are made on a regular basis, then it’s more likely that the overtime should be counted as normal pay.
Without a hard and fast rule, though, it can be tricky to determine whether overtime is sufficiently ‘regular’, and every situation should be assessed on a case by case basis.
Keep voluntary overtime under review
It’s also important to keep voluntary overtime under regular review. What might have started off as very ad hoc overtime, may well have become more frequent and regular, so as to now be contributing quite consistently to an employee’s pay.
Consider the financial disadvantage to the employee
It can also be helpful to consider the following question when trying to evaluate if overtime should be classed as normal pay:
‘If the payments are not included in holiday pay, does this mean that the employee suffers a disadvantage when taking holiday?’
The minimum leave requirements under the UK Working Time Regulations exist to encourage all employees to take a minimum level of leave from work without suffering financially as a result of doing so. If not including overtime in holiday pay places the employee at a financial disadvantage, then they may be deterred form taking leave, which goes against the purpose of the minimum leave requirements.
So, if not including overtime in holiday pay would mean that an employer would be financially worse off for taking holiday, it’s likely that overtime payments ought to be viewed as making up their normal pay.
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Arguably, trying to determine whether voluntary overtime has been carried out with enough regularity to be counted towards an employer’s normal pay is especially tricky. It’s one of those HR grey areas where the best option is to look at how similar cases have been settled in court. But that’s not something your average employer has the bandwidth for!
Our employment law experts have their finger on the pulse when it comes to all the latest rulings around employment law, so they’re excellently placed to advise on tricky issues like holiday pay and overtime.
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