New guidance on calculating holiday pay for part-year workers

posted by KeithDaniel

The UK Supreme Court has confirmed the rules on how to calculate holiday pay for part-year workers in the recent case of Harpur Trust v Brazel. To the surprise of most and contrary to common practice, the Supreme Court’s decision was that paid holiday for part-year employees and workers must not be pro-rated.

Who are ‘part-year workers’?

Part-year workers are those employees and workers who work irregular hours but are on permanent contracts, for example, those who may work during term-time only or on zero hour contracts.

It is important to note that this does not apply employees and workers who work throughout the year for part of the week.

Case summary

Mrs Brazel was employed by Harpur Trust as a visiting music teacher and had a permanent zero hour contract. Mrs Brazel only worked during term-time and was paid an hourly rate. She did not receive pay during school holidays although she remained employed by the Trust during such holiday periods.

The Trust allowed Mrs Brazel 5.6 weeks’ of paid holiday per year and required her to take leave outside of term-time.

The Trust calculated Mrs Brazel’s holiday pay using the 12.07% method (explained below) but Mrs Brazel argued this was the incorrect method as it resulted in her receiving less than 5.6 weeks’ worth of holiday pay.

Previous practice vs the Supreme Court decision

Employees and workers are entitled to 5.6 weeks’ of paid holiday per year, which amounts to 28 days for full-time employees/ workers.

However, calculating holiday pay is not as straight-forward when it comes to more flexible working arrangements.

Previous ACAS guidance, which has now been withdrawn, stated that the holiday entitlement of 5.6 weeks is equivalent to 12.07% of hours worked over a year. Thereby, most employers have historically pro-rated holiday entitlements for part-year employees / workers using this 12.07% method.

The Supreme Court has however, held that this method is incorrect and employers should be calculating holiday pay for part-year workers / employees using the Calendar Week Method, which involves first determining an average week’s pay and then multiplying that average by 5.6.

This decision means that holiday pay for part-year employees and workers is 5.6 weeks’ paid holiday per year, regardless of how many weeks they actually work per year. Such individuals will therefore get more paid holiday proportionately than those who work throughout the whole year, given that they could work a fraction of the hours but receive the same number of days holiday.

A failure to provide this paid holiday entitlement would allow a part-year employee / worker to bring a claim for unlawful deductions from wages.

Considerations for employers

This decision is significant for employers who engage part-year employees and workers, and have not been using the ‘Calendar Week Method’ to calculate the holiday pay or have pro-rated holiday pay for such employees/ workers.

It would be prudent for employers to now consider:

  • How they are calculating paid holiday entitlements and whether their policies need to be updated to reflect this new ruling.
  • The cost of engaging part-year employees and workers. Such individuals will be entitled to 5.6 weeks’ paid holiday each year, even if they only work for a few weeks per year. Employers may wish to review contracting options more carefully.
  • Whether any part-year workers / employees engaged by employers may be entitled to claim back underpaid holiday. This will depend on when they started working for the employer, the terms of their contract and whether they are still engaged. Strictly speaking, such claims are limited to 2 years of back pay.
  • Providing relevant employees / workers with a written statement to set out their new holiday entitlement. It is key that this is done in a manner which avoids opening the door for potential compensation claims for underpaid holiday.

The Employment Team at Berry Smith can provide specialist advice on the practical steps employers and HR professionals should be taking in light of this new decision and how to minimise the risk of any claims.

Please contact us if you would like more information about the issues raised in this article or any other aspect of employment law at 029 2034 5511 or employment@berrysmith.com.