Holiday pay - should voluntary overtime be included?
Solicitor, Veale Wasbrough Vizards
Yes, provided it amounts to 'normal remuneration', held the Northern Ireland Court of Appeal (the Court of Appeal) in Patterson v Castlereagh Borough Council. The decision, which follows on the back of the high profile Bear Scotland case, confirmed that voluntary overtime is not excluded as a rule from the holiday pay calculation.
All workers are entitled to paid annual leave and regulations require workers to be paid 'a week's pay in respect of each week of leave'. The European Court of Justice confirmed in the case of Williams v British Airways that holiday pay must correspond with 'normal remuneration'. Recent cases have therefore explored what payments should properly be included as 'normal remuneration'.
The Employment Appeal Tribunal in Bear Scotland held that non-guaranteed overtime (overtime that the employer is not obliged to offer but which the worker is contractually required to work if requested) is 'normal remuneration'. However a question remained over whether voluntary overtime (overtime that the employer is not obliged to offer and which the worker is not contractually required to work if requested) would also amount to 'normal remuneration'.
In Patterson the Court of Appeal held that there is “nothing in principle” to prevent purely voluntary overtime from counting towards holiday pay provided that it amounts to 'normal remuneration' in the circumstances. The Court of Appeal stressed that each case will need to be decided on its facts and will depend upon whether voluntary overtime is normally carried out and forms an appropriately permanent feature of a worker's remuneration to trigger its inclusion in the holiday pay calculation.
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Although not legally binding on the courts and tribunals in England and Wales, this case is likely to have significant persuasive value and indicates how similar cases will be decided going forward. Unhelpfully for employers, the Court of Appeal did not provide any guidance on the tests that will be applied to determine whether voluntary overtime will amount to 'normal remuneration' in any given case. Until further guidance on this issue is provided, employers should consider whether voluntary overtime arrangements are an appropriately permanent feature of employee remuneration and make adjustments to holiday pay accordingly.
More helpfully, claims for backdated deductions from wages, including holiday pay, presented on or after 1 July 2015 are now subject to a two-year limit therefore limiting the potential liability of employers going forward.