This month we share our thoughts on some recent decisions which continue to shape this tricky area of law.

Offering overtime means that employers are more easily able to cope with fluctuating demands, particularly around certain times of year i.e. Christmas or sale times. This flexibility is generally considered to be a good thing for both employers and employees alike, with many employers paying an increased hourly rate, perhaps time and a half, for any periods of overtime worked. However, it is vitally important that regular overtime is properly reflected in an employee or worker’s holiday pay, so that no-one is disincentivised from going on holiday because by doing so they would earn less during such time than they ordinarily would earn when they are at work. If an employer fails to take overtime into account, they may find themselves facing claims for the unlawful deduction from wages.

What if the overtime is not compulsory?

Overtime is generally considered to be hours worked in addition to those required under a worker or employee’s contracted hours. Some employers will require their staff to work overtime, whereas other employers may offer it to staff on a voluntary basis. While it is generally accepted that compulsory and guaranteed overtime should be taken into account when calculating holiday pay, the position is less clear when considering voluntary overtime i.e. when an employer is not required to offer overtime to its staff and even if it does, staff are not obliged to work it. The recent Court of Appeal decision in Flowers v East of England Ambulance Trust has confirmed that no distinction is to be made between compulsory, guaranteed or voluntary overtime. Overtime should be taken into account when calculating holiday pay provided that the overtime is sufficiently regular and predictable to be considered part of normal pay.

What does “sufficiently regular” mean?

This is not particularly clear and we suspect that this may lead to further litigation. The Flowers case does call into question the threshold of regularity, and determining whether a particular worker’s voluntary overtime meets this requirement is likely to present employers with some difficulty. For a number of employers, particularly those with a large number of employees who offer voluntary overtime to staff, it is easy to see how differentiating between individuals’ overtime patterns will become an administrative nightmare and be far too complex and costly to determine. Therefore, employers may take a view that routinely including all overtime payments in their holiday pay calculations is the simplest and most straightforward way to avoid claims in this area.

If there is three-month gap in between underpayments, we’re off the hook, aren’t we?

Not entirely, but your liability is certainly limited, at least for the moment.  Under current law, staff can seek to bring a claim for unpaid holiday subject to a maximum “lookback period” of two years, and only if there is no break in the series of deductions i.e. if there is a gap of three months or more in between underpayments (or periods of holiday), this would be sufficient to break the series. In turn, this means that staff would only be able to claim for unlawful payments post-dating such a gap.

However, the recent case of Chief Constable of Police Service of Northern Ireland and anor v Agnew determined that a three-month gap should not operate to break a series of deductions. While this decision is not binding in the rest of the UK at present, it may become so in the future, particularly as previous Northern Ireland decisions have shaped the law around holiday pay cases. If this case is appealed to the Supreme Court (as we’re expecting), and it becomes a binding authority, the cost of holiday pay claims is likely to soar, with workers or employees able to claim for many more deductions over the two-year period. This lookback period may too be challenged in years to come (note: Northern Ireland does not have such a limit).

While these recent cases may have created further uncertainty for employers, what is clear is that this area is rife for development and change.

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