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Recent EAT finding on the impact of overtime on holiday pay

A recent finding of the EAT in Flowers & others v East of England Ambulance Trust has confirmed that both non-guaranteed and voluntary overtime should be included in an employee's holiday pay calculation provided it was sufficiently regular and settled to amount to "normal remuneration".

A group of NHS employees argued that the calculation of their holiday pay had failed to take account of two types of overtime. The first was non-guaranteed overtime, where a task needed to be completed by the same employee after the end of their normal shift. For example, ambulance workers out on a call after the end of their shift. The second was voluntary overtime, where an employee simply volunteers to work some extra shifts.

On appeal to the EAT by the NHS employees, the EAT concluded that both the non-guaranteed and the voluntary overtime should be included in the calculation of holiday pay.

The EAT held that compulsory, non-guaranteed or voluntary overtime all constitute normal remuneration for the purposes of calculating holiday pay. The decision was based on the overarching principle that there should not be a financial detriment discouraging workers from taking holiday. The EAT summarised that for a payment to count as "normal" remuneration, it must have been paid over a "sufficient period of time". The transcript states that as to what is a sufficient period of time will be a question of" fact and degree" and for the tribunal in each particular case to determine. Items which are not usually paid or are exceptional do not count. Items that are "usually paid and regular across time may do so".

Also, contractually, the EAT ruled that the purpose of the relevant clause in the NHS Terms and Conditions was to calculate holiday pay on the basis of what the employee would in fact have been paid if he or she had been at work. There was no basis for distinguishing between non-guaranteed and voluntary overtime, so both types of overtime should be included in calculating holiday pay under the contract.

As the terms and conditions relied upon in Flowers apply to most NHS staff, this decision could prove very expensive for the NHS and the NHS Trust has applied for permission to appeal the decision to the Court of Appeal.

As to what time period may amount to a "sufficient period of time" is not particularly clear. This remains a grey area for employers as it is evident that cases will be considered on an individual basis. It is apparent, however, that the tribunal will look to the provisions of the contract of employment when calculating any holiday pay so it is advisable that employers review their standard form contracts with the decision in Flowers in mind.

It is also helpful to be aware that in July 2017, The Taylor Review made a number of recommendations with respect to holiday pay including changing the reference period. The Review suggested that the government should increase the pay reference period from 12 to 52 weeks to take account of seasonal variations. This is of course for the purposes of the calculation and not providing any clarity in relation to the quantification of a "sufficient period of time", but it's something for employers to keep in mind.

If you are looking for more information in relation to holiday pay or any of our services, please view our Employment & HR section. You can also contact our Employment and HR team by telephone on 0333 207 1135. Alternatively, send your enquiry to us through our online contact form.

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