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Voluntary Overtime Should be Included in Holiday Pay Calculation

Voluntary Overtime Should be Included in Holiday Pay Calculation

The Employment Appeal Tribunal (EAT) has decided that when an employer is calculating holiday pay it must include voluntary overtime payments that form part of a worker’s “normal remuneration” in that calculation.

The EAT came to its conclusion on the basis that one of the pillars of EU social law is that workers should not be deterred from taking their paid four weeks’ annual leave because they will be financially disadvantaged by doing so.

Holiday pay

Holiday pay

The EAT said that employees on holiday should get paid the same as they would normally expect to receive when working.  Therefore, if they have been paid over a sufficient period of time for undertaking voluntary overtime, then they should expect to be paid this while on holiday.  The EAT did not say what it meant by “sufficient period” but this is likely to be a few months.

This case is the latest in a line of cases that has seen compulsory overtime, bonuses and commission all included in the holiday pay calculation.  But, all of these decisions only affect the calculation in respect to the four weeks’ annual leave that a worker is entitled to under EU law.  An employer can still pay any holiday above this four weeks, which will include the extra 1.6 weeks that must be paid under UK law and any other contractual entitlement, at a lower rate based on an employee’s basic rate of pay if they wish to.