Voluntary Overtime and Holiday Pay

The Court of Appeal has upheld the Employment Appeal Tribunal’s decision that the voluntary overtime payments which constitute normal pay must be included in statutory holiday pay. This judgment confirms that both EU law under the Working Time Directive and contractual terms can give rise to such an entitlement.

Background Law

Under Article 7 of the Working Time Directive (WTD), EU Member States must ensure that workers enjoy paid annual leave. In the UK, the Working Time Regulations 1998 (WTR) implement this obligation, granting a minimum of 5.6 weeks’ leave. Holiday pay is normally calculated as a “week’s pay” under the Employment Rights Act 1996, which traditionally excluded overtime and commission.

However, in Williams and others v British Airways plc the ECJ held that “workers must receive their normal remuneration for that period of rest.” This ruling opened the door to including additional pay components, such as overtime, when they form part of regular remuneration.

Subsequent UK case law developed this principle:

• Bear Scotland Ltd v Fulton and others (2014): Non-guaranteed but compulsory overtime counted as “normal remuneration” where it was regular.
• Dudley Metropolitan Borough Council v Willetts (2017): The EAT confirmed that truly voluntary overtime must be included in holiday pay if it is sufficiently regular and settled.
• Flowers v East of England Ambulance Service NHS Trust (2018): The EAT held that the WTD itself entitles workers to holiday pay reflecting voluntary overtime that constitutes normal pay.

Facts of the Flowers Case

The claimants, ambulance staff employed by the East of England Ambulance Service NHS Trust, relied on Agenda for Change Clause 13.9, which provided that holiday pay includes “regularly paid supplements, including payments for work outside normal hours.” They alleged that genuinely voluntary overtime had not been reflected in their leave pay.

Employment Tribunal and EAT Decisions

The Employment Tribunal found that truly voluntary overtime was outside the contractual and statutory definition of holiday pay. After the Willetts decision, the EAT overturned this, holding that:

1. Clause 13.9 required inclusion of voluntary overtime in holiday pay.
2. The WTD mandated holiday pay reflect all components of normal remuneration, including voluntary overtime if regularly paid.

Decision of the Court of Appeal

The Court of Appeal unanimously dismissed the Trust’s appeal. Key points:

• Clause 13.9 clearly encompassed voluntary overtime supplements.
• Under the WTD, holiday pay must reflect all aspects of pay “intrinsically linked” to work tasks, whether compulsory or voluntary, provided they are regular.
• The ECJ’s Hein v Albert Holzkamm GmbH & Co KG remarks on “exceptional” overtime were interpreted as distinguishing between regular and truly exceptional overtime, not limiting the principle in Williams.
• Policy considerations warn against allowing employers to reclassify work hours as overtime to reduce holiday pay.

Implications for Employers

Although the case involved an NHS “emanation of the state,” private-sector employers should note that Willetts and Flowers bind the principle that voluntary overtime payments which form part of a worker’s normal remuneration must be included in holiday pay calculations. Practically, this means:

• Review overtime arrangements to determine whether payments are regular and thus qualify as normal pay.
• Adjust holiday pay calculations to reflect any qualifying voluntary overtime.
• Monitor developments, including any Supreme Court appeal.

For further details on this landmark judgment, see our related article on voluntary overtime in holiday pay.