Myerson-News-Employment

Should voluntary overtime be taken into account when calculating holiday pay?


Posted in Employment

Many employers are still considering their response to the series of cases concerning the calculation of holiday pay.  It is settled that pay for guaranteed overtime and non-guaranteed (but compulsory) overtime should be taken into account when calculating holiday pay.  However, a key issue outstanding following the Employment Appeal Tribunal’s decision in the important case of Bear Scotland v Fulton was whether the value of voluntary overtime should be taken into account when calculating holiday pay.

This issue has arisen in the case of Patterson v Castlereagh Borough Council and has been referred to the Northern Ireland Court of Appeal.  The case was heard by the NI Court of Appeal on 17th June 2015.  The Judgement of the Court is not yet available, however, those hoping that the Court is likely to resolve the issue and provide clarity for UK employers are likely to be disappointed.

First, it must be remembered that any decision of the Northern Ireland Court of Appeal will not be binding on Employment Tribunals in England and Wales but, given the similarities in the legislation and the seniority of the Northern Ireland Court, a decision would be at least persuasive.

Technicalities aside, we understand that, in any event, the Northern Ireland Court was not required to make a Judgement on whether the value of voluntary overtime should be taken into account for the purposes of calculating holiday pay.  It is reported that a concession was made by the employer in this case that there was “nothing in principle” meaning that voluntary overtime should not be taken into account when calculating holiday pay.  Whether and how this concession will be dealt with in the Judgement (if it is dealt with at all) remains to be seen.

The unsatisfactory conclusion is therefore that the issue of whether voluntary overtime should be taken into account when calculating holiday pay will be a question of fact for employers depending on the particular overtime arrangements and whether it can be said that the overtime pay forms part of an employee’s ‘normal pay’.  We should expect to see more case law on the interpretation of that phrase in the context of voluntary overtime and holiday pay but we are not aware of any potentially reportable cases at this time.

Employers will be in a better position to tackle the issue of holiday pay head on after 1st July 2015 in the knowledge that any claims for back payment of holiday pay will be limited to holidays taken in the preceding two years.

The inclusion of voluntary overtime pay for the purposes of calculating holiday pay has potentially far reaching implications for payroll costs and administration.  Employers should not assume that the value of voluntary overtime should be included in calculations.  If you require specific advice on these issues, please contact our Employment Law team.

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