Paying Overtime during Holidays

There is some confusion amongst businesses about whether overtime is to be included in employee holiday pay. There have been some key legal decisions on this subject from the Employment Appeals Tribunal (EAT) and the Court of Justice of the European Union (CJEU). As is often the case with employment judgments, we were not given complete answers to the problem so we have to look carefully at the wording.

On overtime, the EAT guidance is quite clear and is as follows:

“when calculating holiday pay, employers should include normal non-guaranteed overtime.”

The definition of non-contractually guaranteed is the overtime hours an employee is obliged to work if it is offered or required by the employer. This would be referred to in the contract of employment; for example, an employee is obliged to work bank holidays, say, in the hospitality or leisure industry.

In practical terms, you should calculate the hours an employee is obliged to work and has worked over the previous three months and take the average amount of overtime paid and include the hours in holiday pay.

So to help you decide which average overtime to include, here is some advice:

1.Guaranteed  or contractual overtime, which the employer is obliged to provide and the employee  must work. This is contractual e.g. 37 hours a week basic plus 8 hours overtime every Saturday. Include this is holiday pay.

2.Non-guaranteed overtime, which the employer is not obliged to provide but the employee must work if it is offered. This is often referred to in the contract for example, in the contract it says, “overtime will be offered which you will be required to work”  Include this in holiday pay

3.Voluntary overtime, which the employer is not obliged to provide and the employee can choose whether to work it or not. This can be described as casual but the important issue is, can an employee refuse to work the overtime. You need not include these hours in holiday pay.

We expect more appeals on this issue.

To complicate it further the prevailing view of the Courts is that the additional overtime in holiday pay need only be included when calculating the first four weeks’ holiday entitlement, rather than the full 5.6 weeks (28 days).

The problem what do businesses do? If you are insisting an employee work overtime when you demand I recommend this is included in all holiday pay (it is simple to use all 28 days) based on the 12 week average but only include this type of overtime.  Another example, you may insist an employee works an extra 1 hour a day to shut your premises at night; in this case, this should be paid during holidays.

To conclude  – Non-guaranteed overtime is where there is no obligation by the employer to offer overtime but if they do then the worker is obliged by the contract or common practice to work the overtime.  The employee has no choice. It is unclear how this affects overtime that is simply worked as a matter of custom to boost earnings, but the question we must ask is this overtime required by an employer.

Watch this space!!!