Employment law states that holiday pay should be equivalent to a normal week’s pay so as not to place employees at a financial detriment when taking a period of annual leave. For employees working fixed hours each week, this is a straightforward calculation. However, calculations are more complicated when employees work varying hours. In these situations, employers must calculate the overall average working time in the 12 weeks immediately prior to taking annual leave. If there is a week during this period where no work occurred, then the calculation must take into account an earlier week where work did take place. A recent landmark ruling means that now, voluntary overtime joins compulsory and non-guaranteed overtime to be included in holiday pay calculations when it is ‘sufficiently regular and settled’. Therefore it is recommended that employers review existing methods of recording overtime shifts and ensure payroll include these in calculations going forward. Employees who receive result-based commission are also entitled to have this include in their holiday pay calculations.
Compulsory overtime, which employers are contractually obliged to offer and employees are obliged to accept, has long been included in these calculations. The requirement to include non-guaranteed overtime, where employers have no obligation to offer, but cannot be refused by employees when it is, came in in 2014
It is important to note that aside from compulsory overtime, all other forms of overtime will only apply to the 4 weeks of annual leave provided by the EU Working Time Directive. This is not required for the additional 1.6 weeks that is provided as a minimum under UK law.