Paid Overtime And The Implications For Calculating Holiday Pay
ACAS have recently published guidance on calculating overtime as part of holiday pay.
Overtime is typically considered to be those hours that are worked over and above contracted hours. It may be voluntary (with no obligation on either the employer or employee to offer or accept overtime); both compulsory and guaranteed (an obligation on both the employer and the employee to offer and accept), or compulsory but not guaranteed (whilst there is no obligation on the part of the employer to offer it, where it is offered it must be accepted by the employee).
Holiday pay is typically calculated by reference to a number of factors, but a distinction is made between those with ‘normal working hours’ and those with ‘no normal working hours’. Ultimately, a week’s holiday pay must reflect a week’s ‘normal pay’.
This includes any regular overtime paid, even where this was offered and/or accepted only voluntarily. At the moment, this only applies to the statutory minimum 4-week annual leave entitlement. There is, of course, no obligation to pay a premium for overtime, but where agreed, it should be set out in your Terms and Conditions of employment, and consideration must also be given to any part-time workers who carry out regular overtime.
What does this mean for you?
Overtime needs to be taken into account when calculating holiday pay. Each case will of course be considered on its own merits, in particular, the determination of what is ‘regular’ overtime and ‘normal pay’, and whether this pattern extends for a sufficient period of time to be considered ‘normal’. In recent case law, overtime payments made every 4-5 weeks were considered part of ‘normal pay’, although there may be valid arguments against this presumption where overtime is less frequent.
You may need to revisit your procedures for calculating holiday pay and establish some mechanism for incorporating regular overtime payments, and it may also be time for a review of your contracts of employment.
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