When is overtime compensation included in the wages during holidays?
On 27 September 2024, the Supreme Court ruled on which wages should be paid during holidays. The Court of Justice of the European Union (hereinafter: Court of Justice) already considered the question of what exactly ‘holiday pay’ entails in 2018 and 2024. The employee must be able to go on holiday ‘carefree’, which means that overtime compensation must also be included when calculating the holiday wage, although there are still conditions attached to this. In this article we discuss the implications of the ruling in practice.
Article 7:639 of the Dutch Civil Code, which article is an elaboration of Article 7 paragraph 1 of Directive 2003/88/EC (the Working Time Directive), stipulates that the employee retains the right to wages during holidays. The purpose of this continued payment obligation is to place the employee in a situation during the annual holiday that is comparable in terms of remuneration to the situation during periods of work.
From the ruling of the Court of Justice of 13 December 2018 (Hein/Holzkamm) case law of the Dutch lower courts has derived that overtime compensation should only be included in holiday pay if these overtime hours:
(i) were ordered by the employer;
(ii) were made on a regular basis; and
(iii) the compensation formed an important part of the total wage.
In practice, the interpretation of these requirements led to complications and overtime is not (always) included in the calculation of the wage to which an employee is entitled during holidays. After all, when is overtime ‘ordered’? That will not be easy to prove for an employee, because the employer and employee do not always put agreements about overtime in writing. It is then difficult for the employee to receive overtime compensation during holidays.
The Supreme Court puts an end to the requirement that overtime must only be paid as part of the holiday pay if it concerns ordered overtime. The Supreme Court interprets the case law of the Court of Justice in such a way that incidental and unpredictable overtime does not count towards the calculation of holiday pay, but regular overtime does, regardless of whether it was ordered by the employer or not. According to the Supreme Court, when a substantial part of the wage consists of overtime compensation, it is very clear that the compensation for overtime is part of the holiday pay, because otherwise the wage during holidays is not comparable to the wage during periods of work.
When does overtime compensation form a substantial part of the total wage?
Even after the Supreme Court ruling, this question has not been answered definitively. Prior to the Supreme Court ruling, the Court of Appeal of ‘s-Hertogenbosch ruled that overtime can only be considered a substantial part of the wage – and should therefore be considered in holiday wage – if the overtime compensation amounts to 25% or more of the gross annual salary in the calendar year preceding the year in which the holiday is taken. On 10 December 2024, the Court of Appeal of The Hague ruled contrary to the Court of Appeal of ‘s-Hertogenbosch, that it is not the intention that structural overtime only counts if the overtime concerns at least 25% of the gross annual salary. According to the Court of Appeal of The Hague, fixed percentage does not correspond to the principle that during periods of holiday a wage is paid that is as close as possible to the wage paid during periods of work. This means that even if ‘only’ 10% or 20% of overtime is worked structurally, these overtime hours can be regarded as inherent to the work and therefore form a substantial part of the income.
Future case law will still have to determine whether there is a lower limit to the percentage of paid overtime that would lead to the conclusion that compensation constitutes a ‘substantial part’ of the wage. In any case, it is clear that it must concern structural overtime that follows from the agreements made in the employment contract. It is now also clear that the voluntary nature of overtime does not mean that an employee is not entitled to compensation for regular overtime during holidays.
To prevent differences in interpretation arising about the extent to which overtime is included in the calculation of holiday pay, we advise employers to develop rules of thumb and personnel policies on this.
We are happy to help you develop your policy and answer any questions you may have. Please contact Noa Wammes and Cara Pronk.
