Over the past few years we have seen a number of cases considering what payments should be included in the calculation of holiday pay. These cases have held that commission, contractual overtime and certain allowances should all be included. The question has remained as to how voluntary overtime should be treated. A recent employment tribunal decision has held that voluntary overtime should, depending on the facts, be included in the calculation of statutory holiday pay.
The case involved 56 claimants all of whom had various different elements of pay in their remuneration including contractual overtime, voluntary overtime, standby allowances, and call out allowances. The Employment judge considered that, applying previous case law, those payments which are intrinsically linked to the performance of the required tasks should be taken into account. The tribunal therefore held that the claimants were entitled to have the allowances and the regular additional voluntary overtime considered as part of a week’s pay for the purpose of calculating statutory holiday pay. The payments were intrinsically linked to normal work and paid in such a manner and with sufficient regularity to be considered a part of the claimant’s normal remuneration.
In two instances, the payments were either expected under the job description or were seen clearly by the employee as an extension to the working week. They were both regular overtime payments, not unusual or rare. As a result they should be considered within normal pay. However, for another employee, although he too was subject to voluntary overtime provisions, he advised that such overtime was very rare and therefore could not be said to be part of his normal pay. The tribunal therefore focused on the regularity of the payments in considering the facts.
The tribunal also held that in the absence of wording to the contrary in the contract, leave is accrued in the order of; Regulation 13 Leave (the four weeks deriving from EU law) first, followed by the additional 1.6 weeks holiday under Regulation 13A. This is important as case law has held that the “normal remuneration” only applies to the entitlement under Regulation 13. The extra 1.6 weeks is calculated according to the provisions of the Working Time Regulations 1998, which provides a right simply to basic pay. Although this order of leave will be appropriate for most employers, some may want to consider whether this should apply in all contracts depending on whether there is a seasonal increase in overtime which coincides with the timing of the holiday year.
Whilst this case focused on the fact specific nature of each payment, it should also be noted that this decision is not binding on other courts or tribunals. It does however indicate the likely approach that will be taken on voluntary overtime and other regular payments
Other issues in relation to holiday pay also remain outstanding: What is the reference period for making this calculation? If a period of 12 weeks is used then again this could cause concern for employers who have peaks in overtime due to seasonal requirements. A 12 month reference period may therefore be a more appropriate calculation.