Should voluntary overtime be included in holiday pay?

This question has not yet been considered by the Employment Appeal Tribunal or Court of Appeal in England and Wales.  However, the Court of Appeal in Northern Ireland has recently found that voluntary overtime may need to be taken into when calculating holiday pay. 

Background

In Paterson v Castlereagh Borough Council, Mr Paterson claimed that earnings received as a result of carrying out voluntary overtime should be included when calculating his holiday pay. The first instance Industrial Tribunal in Northern Ireland disagreed, finding that voluntary overtime could not, as a matter of principle, be included in the calculation for holiday pay.  Mr Paterson appealed.

Court of Appeal decision 

On appeal to the Northern Ireland Court of Appeal the Council conceded that there was no reason why in principle voluntary overtime should not be included in the calculation.  This meant that the case was not fully argued before the Court of Appeal. The Court itself stated that its decision was “short form” and should be viewed with a “degree of caution”.

The Court of Appeal held that the tribunal had erred in finding that voluntary overtime could not be included in statutory holiday pay calculations and remitted the case to the tribunal.  The judge directed that the tribunal should hear evidence of overtime actually worked within a suitable reference period and then make a fresh determination.

The judge stated that: "It will be a question of fact for each tribunal to determine whether or not that voluntary overtime was normally carried out by the worker and carried with it the appropriately permanent feature of the remuneration to trigger its inclusion in the [holiday pay]  calculation."

Impact on employers 

Although the decision is persuasive rather than binding authority in England and Wales, Patterson is the first appellate decision dealing with the inclusion of voluntary overtime when calculating statutory holiday pay. In our view there is a real risk that employment tribunals in England and Wales would find that voluntary overtime should in many cases be included when calculating holiday pay.

However, this case is unlikely to be the last in this complex area of law as employers still do not have clear guidance on what is and is not to be included in holiday pay calculations and many unanswered questions remain.  Indeed, British Gas has recently appealed to the Employment Appeal Tribunal in relation to the decision that commission must be included when calculating holiday pay. 

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