The Employment Appeal Tribunal (EAT) has confirmed that voluntary overtime must be included in holiday pay, when this is worked regularly enough to constitute normal pay.

To confirm, this is where a pattern of work extends for a sufficient period of time, on a recurring basis to justify the description as “normal”

However, the EAT have issued a caution in doing so, on the basis that each case must be decided on its own facts and it is up to individual employment tribunals to determine whether or not the overtime payments are sufficiently “regular and settled” to require inclusion in holiday pay.

Voluntary overtime means that the employer may ask an employee to work overtime, but there is no obligation by their contract for them to work it. The employer is also entitled to refuse a request to work voluntary overtime.

So, to clarify, holiday pay should include:

  • voluntary overtime that is worked regularly;
  • guaranteed overtime – where the employee is required to work this overtime as seen in their contract of employment;
  • non-guaranteed overtime – where there is no obligation for the employer to offer the overtime, but when it is offered the employee is required to work it as specified in their contract of employment;
  • commission – this is usually where an employer receives an amount of money for making sales and can make up some or all of their earnings. However, this must only be factored in to the first 4 weeks of the statutory annual leave entitlement.
  • Work-related travel - Where payments are made for time spent travelling to and from work as part of a worker's normal pay, these may need to be considered when calculating holiday pay. This does not include commuting to the normal place of work as described in the contract of employment;

To calculate holiday pay, it is advised that no matter what the working pattern is of an employee, they should still receive holiday pay based on a “week’s normal remuneration”. This usually means their weekly wage but may include allowances or similar payments, which might be those described above. So, to confirm:

  • If your employee works fixed hours, meaning that they do not vary, holiday pay would be a week's normal remuneration, taking into account the factors above if they make up “normal remuneration”.
  • If your employee has no normal working hours then their holiday pay would still be a week's normal remuneration but the week's pay is usually calculated by working out the average pay received over the previous 12 weeks in which they were paid.
  • If your employee works shifts then a week's holiday pay is usually calculated by working out the average number of hours worked in the previous 12 weeks at their average hourly rate.

However, employers may choose to work out the average over a period of 12 months, if they wish.

If you’re uncertain about this and need assistance, please do not hesitate to contact the Rely Ltd office on 01305 831706 or email: enquiries@rely.company