26 June 2015

We have previously reported on the topical issue of how holiday pay should be calculated, and whether a “week’s pay” for a week’s holiday needs to include commission, overtime, and other allowances habitually paid to employees.

Last year’s decision of the Employment Appeal Tribunal (“EAT”) in Bear Scotland considered the position in relation to overtime which was not guaranteed by the employer, but if instructed by the employer, would have to be worked by the employee – compulsory overtime. The EAT concluded that where such overtime is worked with sufficient regularity to be “normal” it must be included in holiday pay for at least 4 weeks per year. This left open the door in relation to “voluntary” overtime (where the employee may legitimately refuse to work overtime) albeit most commentators considered that voluntary overtime should also be included in holiday pay if it was “normal”.

There has now been a decision of the Northern Ireland Court of Appeal on this point, and while that decision is not technically binding on the courts of Scotland, England and Wales it would certainly be considered by such courts.

It is not, regrettably, a particularly clear or helpful decision.

The industrial tribunal had originally held that voluntary overtime should not be included in holiday pay as a matter of principle. This was appealed by the employees to the Northern Ireland Court of Appeal.

The court has now decided that the tribunal had been wrong to conclude, as a matter of principle, that holiday pay need not include payment in respect of voluntary overtime worked by the employees. The Court did not, however, provide any clear guidance as to whether, and when, voluntary overtime should be included and sent the case back to the tribunal to look at matters again.

Ultimately, it would be a 'question of fact' for the tribunal to consider in each case, and assess to what extent voluntary overtime should be included.

For employers wishing clarity on whether voluntary overtime must be included in holiday pay, this decision provides little assistance. We remain of the view that it is likely that voluntary overtime, where worked with sufficient regularity to be “normal” (rather than occasional or ad hoc) should be included in holiday pay for 4 weeks per year, to comply with the Working Time Directive.

This remains a complex area of law, and we have had experience of guiding a number of employers, of all sizes, through the maze. Contact our employment team for expert advice.