Recent EAT finding on the impact of overtime on holiday pay

A group of NHS employees argued that the calculation of their holiday pay had failed to take account of two types of overtime. The first was non-guaranteed overtime, where a task needed to be completed by the same employee after the end of their normal shift. For example, ambulance workers out on a call after the end of their shift. The second was voluntary overtime, where an employee simply volunteers to work some extra shifts.

The EAT held that compulsory, non-guaranteed or voluntary overtime all constitute normal remuneration for the purposes of calculating holiday pay. The decision was based on the overarching principle that there should not be a financial detriment discouraging workers from taking holiday.

Also, contractually, the EAT ruled that the purpose of the relevant clause in the NHS Terms and Conditions was to calculate holiday pay on the basis of what the employee would in fact have been paid if he or she had been at work. There was no basis for distinguishing between non-guaranteed and voluntary overtime, so both types of overtime should be included in calculating holiday pay under the contract.

As to what time period may amount to a "sufficient period of time" is not particularly clear. This remains a grey area for employers as it is evident that cases will be considered on an individual basis. It is apparent, however, that the tribunal will look to the provisions of the contract of employment when calculating any holiday pay so it is advisable that employers review their standard form contracts with the decision in Flowers in mind. It is also helpful to be aware that in July 2017, The Taylor Review made a number of recommendations with respect to holiday pay including changing the reference period. The Review suggested that the government should increase the pay reference period from 12 to 52 weeks to take account of seasonal variations. This is of course for the purposes of the calculation and not providing any clarity in relation to the quantification of a "sufficient period of time", but it's something for employers to keep in mind.