Voluntary overtime could boost NHS holiday pay bill

Emma Pattenden | emma.pattenden@mills-reeve.com

Mills and Reeve is acting for a NHS Ambulance Trust in a dispute about their obligations to include voluntary overtime in the calculation of holiday pay.

A decision from the Employment Appeal Tribunal earlier this year ruled that all regularly worked voluntary overtime needs to be included in the holiday pay calculation for the first four weeks of statutory leave. For NHS employees on agenda for change terms and conditions it has also decided that there is an additional contractual entitlement for voluntary overtime to be included in all their holiday pay, regardless how often it is worked. However, both elements of this decision are currently under appeal.

What did the EAT decide?

There were two primary issues before the EAT, both concerned with treatment of purely voluntary overtime – ie overtime which the claimants had no contractual obligation to work and which therefore did not necessarily fall into a predictable pattern. This is to be distinguished from guaranteed overtime (ie overtime hours which are both contractually guaranteed and compulsory) and non-guaranteed overtime (ie overtime which the employers are not obliged to offer, but which the employees would be obliged to work if asked).

The first issue was whether the NHS Trust was obliged under the Working Time Directive to include voluntary overtime in its calculations of the core four weeks’ holiday pay guaranteed by the Directive, the NHS Trust having conceded that non-guaranteed overtime pay that was normally received should be included for these purposes. The EAT overturned the ET’s ruling that voluntary overtime could not in these circumstances be regarded as “normal” remuneration. It said that in each case the tribunal would need to look at the pattern of working and assess whether it was sufficiently regular to count as normal remuneration.

The second issue was whether the claimants had an alternative contractual claim under paragraph 13.9 of Agenda for Change which reads as follows:

“Pay during annual leave will include regularly paid supplements, including any recruitment and retention premia, payments for work outside normal hours and high cost area supplements. Pay is calculated on the basis of what the individual would have received had he/she been at work. This would be based on the previous three months at work or any other reference period that may be locally agreed.”

The ET agreed with the NHS Trust that this wording did not extend to voluntary overtime, but disagreed with the NHS Trust in finding that it did extend to non-guaranteed overtime. On appeal, the EAT ruled that paragraph 13.9, in effect, required contractual holiday pay to reflect all overtime pay received during the relevant reference period, regardless of the regularity with which it was paid.


Next steps

An application for permission to appeal to the Court of Appeal has been lodged.  If the appeal is allowed to proceed, it is not likely to be decided until the end of next year.


Practical implications

The impact on individual Trusts will depend on their precise working arrangements. The impact is likely to be particularly significant where the voluntary overtime is worked at premium rather than plain rates. 

The prevalence of voluntary overtime paid at premium rates varies from Trust to Trust and can be driven by both organisational culture and skills shortages. A full evaluation of the risks to which NHS organisations are exposed will have to await the final outcome of the current litigation, though clearly a greater use of bank staff to cover for work which would otherwise be paid at premium rates would mitigate these risks. However, if not carefully managed, such adjustments could lead to a significant reduction in the total remuneration available to permanent staff. This change could have an adverse effect on staff morale and could also make new recruitment into these posts more difficult.