Overtime Must Be Factored In To Calculating Holiday Pay – Guideline Ruling

Should voluntary overtime count as ‘normal remuneration’ when calculating a worker’s statutory holiday pay entitlement for the four weeks’ annual leave required under the EU Working Time Directive (WTD)? The Court of Appeal came to grips with that burning issue in a guideline case concerning a group of NHS ambulance service workers.

The workers were entirely free to choose whether or not to work voluntary overtime shifts, but argued that payments they received in respect of those shifts should be factored in when calculating their holiday pay. After achieving a mixed result before an Employment Tribunal, their arguments were upheld in their entirety by the Employment Appeal Tribunal (EAT).

In dismissing their NHS trust employer’s appeal against that ruling, the Court found that the EAT’s decision reflected a true interpretation of a collective agreement incorporated within their employment contracts. The trust’s obligation to take their voluntary overtime payments into account also arose under the WTD.

The Court noted that it had been repeatedly emphasised in European legislation and case law that paid annual leave is a fundamental right. The Court of Justice of the European Union had frequently stated that there must be no disincentive to workers taking such leave and that employers cannot satisfy obligations imposed by the WTD by paying the bare minimum under workers’ contracts.

The exclusion of voluntary overtime from the calculation of holiday pay would carry the risk of encouraging employers to reduce their holiday pay liabilities by setting artificially low levels of basic contractual hours and categorising any remaining working time as overtime. The prevalence of so-called zero hours contracts in the UK meant that such a risk was far from fanciful and provided a very real objection to the trust’s arguments.

Annual leave must, in principle, be determined in such a way as to correspond with the normal remuneration received by a worker, including any voluntary overtime payments or other supplements.

The Court also confirmed that, both under their contracts and the WTD, the workers are entitled to have guaranteed overtime – worked in order to complete ongoing tasks after the end of their shifts – taken into account when calculating their holiday pay.

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