Voluntary Overtime included in Holiday Pay

Should voluntary overtime, normally worked, be included when calculating an employee’s holiday pay?

What is overtime?

This is defined as time worked over an employee’s normal working hours. This can be either voluntary or compulsory. Voluntary overtime is extra hours that the employer does not have to offer and the employee does not have to accept.  Compulsory overtime would form part of an employee’s terms and conditions of employment. Employees only have to work overtime if their contract states so. Although employers do not have to pay employees for compulsory overtime, their wages should not fall below the national minimum wage.

There is no specific guide as to how regular the overtime should be worked, when an employee usually works a set pattern of overtime, then this overtime should be included as normal remuneration when an employee is on annual leave as it is money they usually earn. The pattern could be working as little as one period of overtime in every five weeks; it would still count as being regular.

In the case of Dudley Metropolitan Borough Council v Willetts (July 2017), where the workers were Quick Response Operatives with skilled roles, who regularly worked voluntary overtime, the Council were of the opinion that overtime payments were not classed as normal remuneration.

Not including the overtime payments would cause a financial disadvantage to the workers by having less money in their pay packet, and the EAT rejected the Council’s response to their claim. There is a risk of workers not taking their annual leave entitlement if they fear that they are not going to receive what they would normally earn during that period of time.

Overtime for part-time workers

Employers can choose to pay overtime to part-time workers on the completion of their normal working hours, but part-time workers have no legal right to overtime pay until they have worked the same basic hours as a comparable full-time worker.

Therefore, the employer should make clear the overtime rates applicable to part-time workers, particularly where it differentiates between additional hours worked by part-time workers:

• beyond their normal contractual hours but within the normal working hours of the organisation (usually paid at their normal hourly rate, although organisations may pay at overtime rates); and
• outside the normal working hours or full-time equivalent hours (to be paid at overtime rates).