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Holiday pay and overtime

CalculatorCalculating holiday pay has just become a bit more complicated. Employees who regularly work voluntary overtime beyond their contracted hours could be eligible for holiday pay on that overtime, following a court ruling.

In a recent legal case a judge ruled that voluntary overtime, voluntary standby and voluntary call-out payments should be considered “normal pay” when undertaken with “sufficient regularity”, which means they should be reflected when calculating a worker’s holiday pay.

The holiday pay rules on overtime are as follows:

  • Guaranteed overtime

    This is where overtime is written into a contact and an employer is obliged by the contract to offer and pay for agreed overtime. Following a judgment in 2004, guaranteed overtime must be included within the calculation of holiday pay.

  • Non-guaranteed overtime

    Non-guaranteed overtime is where there is no guarantee of overtime in the contract, but if an employer offers it then an employee is obliged by the contract to work overtime. A ruling in 2014 clarified that employees should have their normal non-guaranteed overtime hours taken into account when annual leave is calculated. This has an impact on situations where workers regularly and consistently work overtime. If overtime is worked on one-off occasions it won’t count towards holiday leave.

  • Voluntary overtime

    This is where employers offer the opportunity of paid overtime and employees agree to work purely on a voluntary basis. They are free to turn down the offer of work. If the work is carried out regularly and becomes part of their normal hours and pay then it could be taken into account when calculating holiday pay.

The recent court case concerned tradesmen working for a Council, who were invited to work on a Saturday on a voluntary basis, on the Council’s social housing. They also elected to go on standby every four weeks to deal with emergency call-outs. Their holiday leave was worked out on the core hours worked only.

This system had been in place for a while and the employees worked regularly to the point that the hours and overtime pay had become part of their normal working hours and pay. So the judge ruled that payment for that work had to be included in the calculation of holiday pay (for the first 20 days of annual leave).

There are still questions around what counts as sufficiently regular voluntary overtime. Jonathan Gidney, barrister at St Philips Chambers, who represented the tradesmen at trial, said: “I would say once a quarter, or more, would be classified as ‘regular’ work. Once every six months might be pushing it a bit.”

We may see other cases go to court before we have clarity on voluntary overtime and holiday pay. If you have any questions about holiday pay and overtime you can contact ACAS.

There are three types of holiday leave
• The first type is holiday leave under regulation 13 of the Working Time Directive. It relates to the first 20 days of annual leave that a worker has in any leave year.
• The second type of holiday leave covers 8 additional days, essentially the bank holidays.
• The last type relates to any extra days that a worker may have under their contract.

Holiday leave explained

Calculate holiday entitlement