Our latest blog post reviews two important developments in the calculation of holiday pay. First, the Government announced late last year that it will extend the reference period for calculating holiday pay. Second, the recent decision in Flowers v East of England Ambulance Trust clarifies the uncertainty surrounding whether voluntary overtime should be included in the calculation of holiday pay.
New reference period
From 6 April 2020, holiday pay will be calculated on the basis of average weekly pay over 52 weeks, replacing the current reference period of 12 weeks. The amendment will give effect to one of the key recommendations of the Taylor review of modern working practices, published in July 2017, which was to resolve the concern that a 12-week reference period did not take into account the seasonal nature of casual and zero-hours work arrangements. In December 2018, the Government published the Good Work Plan, where it committed to enacting the legislation that will now come into effect next April, extending the reference period.
The calculation of statutory holiday pay is governed by the UK Working Time Regulations (the “WTR”), which provides that, during statutory annual leave, workers are entitled to be paid at a rate of a week’s pay for each week of leave. A week’s pay has been interpreted as being ‘normal remuneration’. Various cases have considered the extent to which overtime should be included in this calculation. It was established fairly early on that compulsory non-guaranteed overtime should be included in the calculation, however, uncertainty remained over voluntary overtime.
The position has now been resolved by the Court of Appeal in Flowers v East of England Ambulance Trust, which decided that voluntary overtime payments should be included as long as they are sufficiently regular and paid over a sufficient period. The Court rejected comments made by the ECJ, in an earlier case, where it was suggested that overtime pay could only be included to the extent that it was provided for in the worker’s contract. Although Flowers was a case under the Working Time Directive (the “WTD”) rather than the WTR, UK courts and tribunals will interpret the WTR to conform with the WTD, and so the case is likely to apply equally to private employers. The question then becomes: when will overtime be “sufficiently regular”, and that will remain something that will turn on the facts of each situation.