Overtime allowance and pension accrual.

Publication date: 6 january 2025

In my article from 12 September 2022, I concluded that additional hours worked by part-time employees should be included in the pensionable salary to ensure there is no distinction between employees based on working hours. But how does this apply to overtime allowances and pension accrual?

Difference between additional hours and overtime

Overtime refers to hours worked by an employee beyond the full-time workweek, whereas additional hours are the extra hours worked by part-time employees. Part-time employees first deal with additional hours before overtime applies (which starts when they work full-time hours). Overtime is often not compensated based on the regular salary but with a compensation (e.g., 150% of the hourly wage).

In the rest of this article, I will use the term "overtime" below to refer to both the extra hours worked by part-time employees and overtime worked by full-time employees.

Distinctions in collective labour agreements (CLA)

In collective labour agreements (CLA’s), there is often a distinction between the compensation for overtime of part-time and full-time employees. This can occur in the following ways:

a) There is an overtime compensation when the overtime threshold is reached, but the threshold for part-time employees is not reduced proportionally.

b) Part-time employees only receive overtime compensation when the full-time norm is reached.

c) The overtime for part-time employees is compensated differently from the overtime of full-time employees, usually based on the regular salary instead of the overtime compensation.

Case law

Until recently, there was no consistent approach in the case law of the European Court of Justice (ECJ). The Court typically relied on equal total compensation, which also means that pension accrual should be equal. The Equal Treatment Commission (now the Netherlands Institute for Human Rights) also used to follow this methodology. The example below illustrates the methodology of equal total compensation.

Example: The salary for the 33rd hour of a part-time employee with a 32-hour workweek should be calculated based on the regular salary, just like the 33rd hour of a full-time employee with a 40-hour workweek. If both employees work a total of 41 hours and there is an overtime compensation, the 41st hour should be compensated in the same way.

However, the ECJ has recently ruled that a different compensation for overtime between part-time and full-time employees cannot be objectively justified. This means:

a) An overtime threshold must be applied pro rata for part-timers. This means that if there is an overtime threshold of 4 hours based on full-time work (40 hours), this threshold for a 30-hour part-time employee must be reduced to 3 hours.

b) Employers may not provide an overtime compensation to part-time employees only after exceeding the full-time norm.

c) Part-time employees are entitled to an overtime compensation (as it applies to full-time employees) as soon as they work more hours than agreed in their contract. This means that if the overtime compensation is 150% of the hourly wage, this higher compensation must apply to the part-time employee working extra hours and not just after exceeding the full-time norm. See the example below.

Example: The salary for the 33rd hour of a part-time employee with a 32-hour workweek should be calculated based on the overtime compensation, just like the 41st hour of a full-time employee with a 40-hour workweek. If both employees have the same hourly wage, the 33rd hour of the part-time employee will be proportionally more expensive than the 33rd hour of the full-time employee.

With this, the Court moves away from the methodology of equal total compensation. I can imagine that this new approach by the Court could lead to discussions, as the part-time employee may have an advantage over the full-time employee.

Consequences for pension accrual

The recent rulings of the ECJ may lead to claims from part-time employees who received lower compensation for overtime than full-time employees. This could also impact pension accrual if the overtime compensation is part of the pensionable salary. This makes part-time employees more expensive, both in practice and relative to full-time employees. See the examples I provided earlier. The way an overtime compensation should be administered in the pension administration is, in principle, determined by the pension provider.

If the overtime compensation is not part of the employment terms, my conclusion remains that additional hours worked by part-time employees should be included in the pensionable salary:

• In the case of an insured pension scheme, this can be done by adjusting the part-time factor based on the number of overtime hours, so that i) the AOW (state pension) threshold is applied correctly, ii) there is no unequal treatment, and iii) there is no conflict with the pension regulations (since these often specify that the pensionable salary consists of the fixed salary). Example: If a part-time employee with a 32-hour contract temporarily works 4 extra hours, that employee will have a part-time factor of 90% (= 36/40) during that period instead of 80% (= 32/40).
• In the case of a industry wide pension fund, again, pension accrual over overtime for part-time employees and the administrative method is, in principle, determined by the pension provider.