Voluntary overtime may be included in holiday pay.

payrollThe Northern Irish Court of Appeal has ruled that payments resulting from voluntary overtime should be considered in the calculation of normal pay and may be included for holiday pay purposes.

In the case of Mr Patterson v Castlereagh Borough Council, the Court of Appeal overturned an earlier tribunal decision so that pay from voluntary overtime should be included.  Any rulings which add to our understanding of normal pay in this area are useful, however it should be remembered that the ruling in this case does not have direct application to the courts in England and Wales, although it is likely to carry weight.

In the absence of a statutory definition employment tribunals will continue to look at individual cases to determine any patterns of overtime and other remuneration which constitute elements of normal pay.  This lack of clarity removes any certainty from the paying of holiday pay.  Employers acting clearly and with their best intentions may find themselves at an employment tribunal with employees of differing opinions as to what constitutes normal pay.

The European Union’s Working Time Directives concern various aspects of working time, including holiday entitlement.  Without local legislation the European Union’s Directives do not normally have a direct effect on individual citizens.   The Working Time Directive passed into United Kingdom law through the Working Time Regulations covers the statutory amount of annual leave and the rate at which this should be paid.  However, the regulations are particularly light on how this should be done limiting itself to a week’s pay for a week’s holiday.

To complicate matters further the payment of holiday may be made at two tiers; the twenty days required by the Working Time Directive and any additional contractual holiday entitlement provided for by employers, for which the Working Time Directive and Working Time Regulations do not apply.  There is a potential third tier of the 1.6 weeks provided for by the Working Time Regulations, which lies between the European requirement and employer contractual freedom.

By way of example, regular commission payments, such as those considered in Luck v British Gas, may only be required to be included in the consideration of normal pay for the 20 days provided for by the Working Time Directive, however, the court’s ruling on this is currently under appeal.

There are a number of steps employers should take during the current period of uncertainty:  Employers should be in a position to utilise their payroll systems to monitor the payments which are being made and identify those payments which could be considered normal.  Employers should review their contractual definitions of normal and holiday pay, as well as how payments are made from any overtime, commission or regular payment schemes.  Where potential conflicts are identified employees should be proactive in addressing these and review their policies and procedures accordingly.

Jim Taylor LLM

The opinion given in this article is for general information only and is intended to illustrate and highlight themes which may affect employers and their employees. It should not be taken as specific advice on any situation or the appropriate course of action for any particular company or employer. Should you wish to discuss a similar situation or any other matter please contact Ascent HR Limited. ©Ascent HR Limited.

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