Statutory Holiday Pay Should Take Overtime Into Account

In the recent case of Neal v Freightliner Ltd, an Employment Tribunal (“ET”) has suggested that overtime ought to be included for the purposes of calculating holiday pay, even where it has been worked voluntarily.

In the recent case of Neal v Freightliner Ltd, an Employment Tribunal (“ET”) has suggested that overtime ought to be included for the purposes of calculating holiday pay, even where it has been worked voluntarily.

Under the Working Time Regulations 1998, workers are entitled to 5.6 weeks' statutory annual leave. Workers must be paid at the rate of a “week’s pay” for each week of leave. What constitutes a “week’s pay” is a fairly complex calculation under the legislation. Historically, however, it has always been understood that overtime is only to be included in the calculation where it is both compulsory and guaranteed.

Mr Neal’s contract provided for him to work basic hours of 35 hours per week (five shifts of seven hours). His contract also provided that he “may be required to work overtime when necessary”. In reality, Mr Neal worked much more than his basic hours – sometimes working up to 12 hours in one shift.

Mr Neal received holiday pay which was reflective only of his basic 35-hour salary. He brought a claim against his employer, arguing that, because of a European Court decision in Williams and others v British Airways Plc [2011], he was entitled to holiday pay which ought to reflect the additional overtime hours he worked. The ruling in Williams states that the EU Working Time Directive requires that holiday pay must correspond to a worker’s “normal remuneration” which should take into account payments which are “intrinsically linked” to the performance of tasks which the worker is required to carry out under their employment contract.

The ET upheld Mr Neal’s claim and agreed that overtime worked by Mr Neal was “intrinsically linked” to the performance of tasks required under his employment contract. This is a wide test and will apply to shifts worked whether they are compulsory or not. Indeed, Mr Neal’s overtime shifts were not guaranteed and were effectively voluntary.

Whilst this is only a first instance decision (and is therefore not technically binding on other ETs), it is a strong indicator of the way that judges are likely to determine claims of this nature. It is important therefore that employers review their holiday pay calculations for employees working overtime. Employers would do well to take specialist advice when dealing with complex holiday pay calculations to avoid costly and time consuming claims.