Do overtime payments count towards holiday pay?

Employees are entitled to paid holidays for at least four weeks every year, known as ‘holiday pay’. In principle, compensation for overtime work does not count as holiday pay. This may be different if overtime is regulated in the employment contract and overtime pay is a significant part of the total compensation an employee receives.

Lack of clarity
The question whether overtime payments should be included in the calculation of holiday pay has been unclear for a long time. This uncertainty arose following a 2018 ruling by the European Court of Justice (hereinafter: “CJEU“) (Hein/Holtzkamm). From this ruling, it could be inferred that only overtime unilaterally imposed (and therefore mandatory) by the employer forms part of holiday pay. The CJEU aligned its terminology with the German procedural language, ruling that overtime is “arbeitsvertraglich verpflichtet” (contractually obligated) if the employer is entitled under the agreement to unilaterally impose overtime on the employee and enforce its performance. However, the Dutch Supreme Court has since ruled that the CJEU’s decision should be understood differently.

Example: Overtime in employment contract
The Dutch Supreme Court judgment in question, dated 27 September 2024, concerned an employee employed by Mammoet Nederland B.V. (‘Mammoet’) since 7 September 1998 in the position of crane operator. Employee worked overtime on the basis of (tacit) agreements. There was a long-standing practice of working overtime and the employee was (always) scheduled for more than 40 hours during the week and on weekends. The employee believed that Mammoet had wrongly disregarded the overtime when calculating the holiday pay and claimed payment of the holiday pay based on those overtime hours including interest and statutory increase.

The Dutch Supreme Court considered that the interpretation by the CJEU should not be understood to mean that overtime only counts towards determining holiday pay if the employer could unilaterally require the employee to work overtime and enforce it.

Instead, the CJEU’s consideration should be read more broadly, in the sense that it refers to overtime that is part of the work that the employee habitually performs in the performance of the employment contract and whose remuneration forms a significant part of his pay. In order to put the employee in a situation comparable to periods worked in terms of remuneration during his annual leave, it is necessary to include overtime in the calculation of holiday pay.

The calculation of holiday pay must therefore include remuneration from overtime if, firstly, there are obligations under the employment contract that require the employee to work overtime on a regular basis. Secondly, the remuneration for these overtime hours worked must constitute a significant part of the total remuneration received by the employee for the professional activity. If this is the case, overtime must be included in the holiday pay. This implies that during his holiday, employee enjoys economic conditions similar to those enjoyed by the employee while performing his work. The idea behind this is that an employee should in no way be ‘discouraged’ from using holiday entitlements.

In doing so, the Dutch Supreme Court, in light of the CJEU judgment, distinguishes between occasional and unpredictable overtime, on the one hand, and overtime that the employee regularly performs as part of his employment contract, the remuneration of which forms a significant part of the total remuneration he receives for his professional activity, on the other.

Tip for employers: compare the holiday period with the normal situation during worked periods
For employers, it is important to keep an eye on whether overtime is part of the obligations arising from the employment contract. Moreover, if these overtime hours form an important part of the total compensation employee receives for his work, the overtime hours should be included in the holiday pay. The basic principle remains that during annual leave, employee is placed in a situation that is comparable to the normal situation during the periods worked in terms of remuneration.