The rules concerning what overtime should be included when calculating holiday pay have evolved over the past few years. Knowing what overtime you need to include when calculating holiday pay is important to avoid claims for underpayment of wages.

Types of Overtime

Overtime can take three different forms:

• Compulsory / Contractual overtime is where the individual must work overtime and this requirement is set out in their Contract of Employment.
• Non-Guaranteed Overtime is where there is no obligation on the Employer to offer overtime, but the individual must work it if it is.
• Voluntary Overtime is where there is no obligation to provide the overtime and no obligation on the individual to accept it.

Previously, it was only compulsory / contractual overtime which was included in the calculation for holiday pay. That changed in 2014, when the Employment Appeal Tribunal confirmed that regular, non-guaranteed overtime should also be included in holiday pay calculations.

In 2016, the approach was extended further: voluntary overtime was to be included if regularly worked over a sufficient period of time. This approach has now been confirmed by the Court of Appeal in the case of Flowers v East of England Ambulance Trust. The judgement states that where that voluntary overtime is “sufficiently regular and settled for payments” then it should be included in holiday pay calculations.

If overtime is genuinely worked infrequently, and there is no expectation that it will be offered then it does not need to be included. There is no definition of what infrequent looks like so if in doubt, it is worth seeking some further clarification.

If you need any support in working through how to calculate holiday pay and what components of pay might need to be included in that calculation, do give us a call on 01625 428926.

Have a great week,

Lisa