New guidance on overtime released: clarity and confusion

ACAS have recently released new guidance on what constitutes overtime, what this means in terms of pay and the impact on holiday calculations.

The new guidance sets out to provide greater clarity to a previously foggy area; overtime is carefully defined as ‘hours worked over an organisation’s regular full time requirement’ and explanations are provided for its three different forms (Source 1):

  • Voluntary
  • Compulsory and guaranteed
  • Compulsory but non-guaranteed.

Voluntary overtime is defined as an instance where an employer is not obliged to offer overtime and workers are not obliged to take up the overtime if it is offered (Source 1). This includes scenarios such as multiple colleagues being absent from work, an employer offering overtime to meet consumer demand, and workers then deciding whether to work the hours with no mandatory requirement to do so contractually (Source 1).

ACAS go on to position guaranteed overtime as that which an ’employer is contractually obliged to offer and the worker is contractually obliged to accept’, whilst non-guaranteed overtime is that which ‘doesn’t have to be offered by an employer’, but when it is, workers are obliged to accept and work it (Source 1).

One of the key takeaways of the guidance centres around ensuring contracts and employment terms and conditions are completely clear on overtime requirements and manage expectations on:

  • The limit on how much overtime can be worked. e.g employees must not work more than 48 hour weeks unless they choose to ‘opt out’ of this policy – for 16-17 year olds, the limit is 40 hours a week or 8 hours daily and they are unable to ‘opt out’
  • Pay. Workers have no legal right to additional pay or to be paid at a higher rate for overtime, as long as they don’t fall under the national minimum wage for hours worked. Employers should therefore clearly indicate what if anything, will be paid for additional hours
  • Any appropriate pay alternatives. Time off in lieu may be offered to those working above their contracted hours, meaning that for any additional hours worked, the employee can take off from work the overtime hours in addition to their annual leave. Detailed records of overtime worked should be maintained along with a written agreement on when time off in lieu leave can be taken, the authorisation process and what happens if a contract ends before the accrued time is used. When taking the time back, the worker should not fall below the national minimum wage for that period
  • Overtime and part time work. Part time workers must be treated the same as full time employees – e.g if a full time worker receives extra or a higher rate of pay for additional hours, so too should a part time worker after working the same amount of hours. Employers should be mindful that unless stated in an employee’s contract, they are not obligated to pay a part time worker an overtime rate until they have worked the same amount of hours as their full time counterpart.

(For more information on these points, visit Source 1)

Whilst the ACAS guidance continues by detailing the impact of overtime on holiday calculations, I agree with David Whincup from Employment Law Worldview, that it falls short in demystifying how to include overtime in statutory holiday pay entitlement – particularly when the only additional amount potentially in question is overtime that is worked on a genuinely occasional and infrequent basis (Source 2).

  • But what does a ‘genuinely occasional and infrequent basis’ mean? (Source 2) What is the limit on this and what if an employee goes beyond genuinely occasional and infrequent in random months? ACAS indicates that as all court decisions are case specific, employers may want to seek legal advice as to how these decisions will impact on their organisation. However, we’ve had two EAT rulings in the last 12 months that do give us a pretty clear steer on when voluntary overtime must be included in holiday pay. Willetts V Dudley MBC and Flowers v East of England Ambulance Trust considered this and found in favour of the employees that holiday pay must be adjusted to cover voluntary overtime. In the Willetts case, overtime performed once every four weeks was considered regular enough to be included. Of course, we have no clarity on the period used to calculate the adjustment. A twelve-week averaging period is used for employees with no regular hours so there is a precedent to use this for overtime even for salaried staff, but equally some employers may want to go back much further to smooth out peaks and troughs in overtime worked

Finally, there is the problem of three different types of holiday entitlement:

  • 20 days under the Working Time Directive and our UK Working Time Regulations that flow from the Directive – the amount due for the first 20 days of leave a year is what all the court cases in recent years have focused on
  • 8 additional days that UK domestic legislation provides for (ostensibly the 8 UK bank holidays that are now in addition to the EU 20 days)
  • Any additional contractual holiday pay an employer chooses to offer

Thanks to last week’s Brexit White Paper we now know that the Working Time Regulations will not be repealed so there is no ‘wait and see’ excuse for not amending holiday pay calculations to reflect voluntary overtime or any other payments ‘intrinsically linked to the performance of the contract and which relates to the worker’s personal and professional status (as was ruled in the case of British Airways v Williams in 2012) . We must also ensure that employees completely understand how overtime applies for them and what the expectations are both ways, whilst employers must provide total clarity, maintain the relevant record keeping and consider the implications of an overtime policy on statutory holiday pay.