July 6, 2015

Holiday pay – should employers include voluntary overtime in holiday pay calculations?


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Our previous updates on how to calculate holiday pay and new regulations for overtime and holiday pay state that regular compulsory overtime, commission and certain allowances now need to be included when calculating holiday pay.

But what about voluntary overtime?

Last week, the appeal courts in Northern Ireland looked at a case where an employee claimed holiday pay should include an amount for voluntary overtime worked. Voluntary overtime is where an employee has the right to refuse overtime offered by his employer.

Mr Patterson, a Council Engineer, brought an unlawful deduction from wages claim, on the basis that his holiday pay should have included pay for voluntary overtime that he worked. Mr Patterson’s employment contract didn’t mention how overtime would be calculated. However, it was clear that the Council was not obliged to offer overtime and Mr Patterson was not required to accept it.

The Court of Appeal in Northern Island has now accepted that there is ‘nothing in principle’ to prevent purely voluntary overtime from counting towards holiday pay in appropriate circumstances. Unhelpfully, the courts have still not set out a test for employers to apply in determining holiday pay. However, the Court stressed that each case will need to be decided on its facts, considering the regularity and permanence of the overtime arrangement. It also said that the overtime must be an “appropriately permanent feature” of the worker’s remuneration to trigger its inclusion in the holiday pay calculation.

So what’s the current position?

We are still waiting for guidance from the tribunals on how to calculate holiday pay to include overtime and commission. It is now unlikely that we will receive this guidance until next year.

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