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’. And 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. But 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.
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?’
For example, if the worker would receive less pay when taking holiday than they would receive (on average) when working, then it’s likely that voluntary overtime should be included as ‘normal pay’.
Another question to consider is whether there’s an ‘intrinsic link’ between the additional work carried out as voluntary overtime and that which must be carried out under the contract of employment.
For example, if the additional work was undertaken in order to fulfil the contract of employment, then it’s more likely it should be included as normal pay.
It’s worth noting here is that you only need to include overtime in calculations for the 4 weeks of holiday pay included in the EU Working Time Directive. The remaining 1.6 weeks, which fall under the UK Working Time Regulations do not need to have overtime pay included.
Often employers will include overtime for the full 5.6 weeks’ pay, however, in order to make the calculation of holiday pay more straightforward.
Get HR Support
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.
- Managing annual leave: A guide for employers
- Why you need an annual leave policy
- Bank holiday entitlements for part-time employees
The content of this blog is for general information only. Please don’t rely on it as legal or other professional advice as that is not what we intend. You can find more detail on this in our Terms of Website Use.