
Compensation for overtime counts towards holiday pay calculation
According to the law, an employee is entitled to continued payment of wages during vacation. Until recently, it was unclear whether and when compensation for overtime hours should also be included in the calculation of holiday pay. In a recent case, the Dutch Supreme Court provided clarity on this issue.
The case involved an employee who had been working as a crane operator for Mammoet since 1992. Between 2013 and 2018, he worked 525 to 1011 overtime hours annually. However, Mammoet did not include the overtime compensation in the calculation of the holiday pay. The employee found this unjust and demanded back payment of overdue holiday pay.
Supreme Court Ruling
Referring to the Working Time Directive and European case law, the Dutch Supreme Court considered that the purpose of continued wage payment is to place the employee in a financially comparable position during vacation as if they were working. The rationale is that employees should be free to take vacation without worrying that a significant portion of their earnings derived from overtime will not be paid.
The Supreme Court further emphasized the distinction between incidental and unpredictable overtime versus regular overtime. Due to its exceptional and unpredictable nature, compensation for incidental overtime does not constitute part of normal wages. However, compensation for regular overtime, where it forms a significant portion of total earnings, does count as part of wages.
Based on this reasoning, the Supreme Court concluded that compensation for regular overtime, which constitutes a substantial part of total earnings, must be included in the calculation of holiday pay. The Supreme Court clarified that European case law does not stipulate that overtime compensation should only be included in holiday pay calculations if the employer was contractually entitled to require overtime. What matters is that the overtime is performed regularly and that its compensation constitutes a significant portion of earnings.
Implications
The Supreme Court did not specify when overtime is considered "regular" or when its compensation constitutes a "significant portion" of total earnings. This determination must be made on a case-by-case basis. Employers should be vigilant regarding potential employee claims in this area.
It is advisable for employers to review their payroll administration and policies regarding holiday pay and overtime compensation. Additionally, employers might consider reevaluating how to manage regular overtime in the future, for example, by limiting the number of overtime hours or reorganizing them.
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