Holiday Pay: Should voluntary overtime be taken into account?

The holiday season is upon us and the next instalment of the Flowers v East of England Ambulance Trust saga has arrived from the Court of Appeal. The case involves voluntary overtime and whether it should be included when calculating holiday pay. European law says that holiday pay should be based on ‘normal remuneration’. If pay or hours vary, then an employer must look at the previous 12 weeks and pay the average.

In Flowers, the ambulance workers said that two types of overtime should be included in holiday pay: non-guaranteed overtime (when they were required to stay late at the end of a shift) and voluntary overtime. They brought claims based on what their contracts said as well as the provisions of the Working Time Directive. The employment tribunal said non-guaranteed overtime should be included in holiday pay, but voluntary overtime should not. The Employment Appeal Tribunal disagreed and said both should be included.

The Court of Appeal agreed with the EAT. The employees had a contractual right for holiday pay to include overtime. However, the Court said the situation was the same under the Working Time Directive. Voluntary overtime should be included in holiday pay calculations where the overtime is regular enough to be considered part of normal pay. The fact that the overtime is voluntary is irrelevant. If this weren’t the case, workers might be discouraged from taking annual leave which defeats the purpose of the legislation.

This is not the outcome employers wanted but it does not come as a surprise. The Court noted the policy reasons involved. If voluntary overtime were not included in ‘normal remuneration’, an employer might get around the law by setting low basic hours topped up by significant ‘voluntary’ overtime’. The judgment included some debate on a case from the Court of Justice of the European Union (Hein) which seems to contradict this position, so we may not have heard the last on this subject.