Overtime and Holiday Pay

At this time of year many people are concentrating on their summer holiday. Obviously, a major concern when taking holiday is how your holiday pay will be worked out too.

ACAS has recently published new guidance on overtime. The guidance covers a range of topics linked to the subject of overtime, looking at the law relating to part-time staff, as well as full-time staff, it also looks at the law on the limits to overtime, and (importantly at this time of year) how to calculate holiday pay.

The guidance is helpful in providing a short, and accessible summary of the main issues regarding overtime. It does help in making it clear that there are different types or classes of overtime, such as “voluntary overtime”, “compulsory overtime”, and guaranteed overtime. Many employers simply regard the way in which they have always operated the taking of overtime as the normal, so the guidance is helpful in indicating that employers need to look at the terms of the contract of employment to define the basis of the overtime that they use. It gives examples of how each type of overtime can be identified. For example in regard to voluntary overtime it gives the example as follows:-

“ Several workers are absent from work due to sickness. This leaves the employer short-staffed. The employer offers overtime to their colleagues to meet customer demand. The workers are able to choose whether or not to work the extra hours as there is nothing in their contract to say they must do so.”

The guidance does indicate that employers need to ensure the staff have written contracts which address the topic of overtime. The contract of employment is always the starting point in setting out the expectations of both the employer and employee, so it should cover the topic of overtime if the employer expects to need their staff to work overtime at any stage during their employment.

The guidance also emphasises the fact that employers should use the contract of employment to specify how overtime pay should be calculated, and how holiday pay is calculated. The guidance indicates that there is case law which indicates that overtime should be considered in the calculation of holiday pay.

A recent case in the Employment Appeals Tribunal (EAT) illustrates the need for employers and employees to read and fully consider their terms of employment when calculating how overtime should be considered by working out the relevant rate for holiday pay. The case of Flowers v East of England Ambulance Trust indicated that voluntary overtime can in some cases be used in the correct calculation of holiday pay. The EAT ruled that if the overtime, even if apparently voluntary, was part of the normal remuneration, and was paid over a sufficient length of time, then it should be taken into account when calculating the employee’s holiday pay. The case indicates that even if overtime is “voluntary” under the contract, if it has become a normal part of pay and has happened over a sufficient length of time, then those payments should be factored into the calculation of the employee’s holiday pay.  

If you need any further advice on any matter raised in this article do not hesitate to contact us at Hallett Employment Law Services Ltd.