Back in August, employers were left scratching their heads after the Court of Appeal (CoA) ruled that they are no longer permitted to pro-rate holiday pay for part-year workers.
The verdict, which we discuss in more detail here, seemed somewhat counter-intuitive – allowing casual, zero-hour, part-year and other atypical workers to receive proportionately more in holiday pay than those who work full time.
The reason? Well, as the CoA pointed out, there is nothing in the Working Time Regulations (WTR) 1998 which would subject part-year workers to a pro-rata reduction. What’s more, the Part-time Workers Regulations 2000 specifically exist to ensure that these workers aren’t treated less favourably than full-time workers (while at the same time saying nothing that would prevent them from being treated more favourably).
If you’re already up to speed with the Harpur Trust v Brazel case, skip to the bottom of this article for the government’s recommended approach as of November 2019. Otherwise, we explain the developments that have led to this change and what employers will need to do now.
What does the law say?
Amount of leave
Regulations 13 and 13A of the WTR state that a worker is entitled to receive 5.6 weeks’ leave.
Pay for leave
Regulation 16 sets out provisions for what should be paid for that leave, namely that a worker should receive a week’s pay for a week’s leave.
What happens if a worker doesn’t have set hours?
For workers who don’t have defined hours of work (those that work when required, such as zero-hour or term-time workers), holiday pay should be calculated in accordance with the “week’s pay” provisions in the Employment Rights Act (ERA) 1996. This involves working out the worker’s average weekly earnings over the 12 previous weeks in which they have worked (NB: this reference period is due to change in April 2020 to 52 weeks).
How were employers calculating leave entitlement and pay previously?
It has been broadly assumed for some time that for those who work sporadically, it is possible to pro-rate the statutory 5.6 weeks’ leave entitlement so that they receive proportionately the same amount of leave as full-time workers. Until recently, one generally accepted method for doing this was to multiply the number of hours worked by 12.07% to work out what leave has accrued.
Why 12.07%? The 12.07% figure comes from taking 52 weeks per year and deducting 5.6 weeks’ statutory annual leave to give 46.4 standard working weeks per year. This means that, in theory, standard full-year workers are entitled to time off for 12.07% of the time that they work.
This has been the recommended approach from ACAS for some time and has been widely adopted by employers. In fact, pro-rating by using an accrual approach has been approved in a number of European decisions.
How has the CoA judgment changed things?
As mentioned above, the CoA in Harpur Trust v Brazel decided that the WTR did not require leave for part-year workers to be pro-rated. Instead, it confirmed that these workers are entitled to 5.6 weeks’ leave per year with each week’s pay calculated by taking a weekly average over the previous 12 working weeks, disregarding any weeks where no remuneration was paid.
So, what should employers do now?
It’s clear from the judgment that for a permanent, zero-hours, part-year worker are entitled to 5.6 weeks’ annual leave per year. However, the difficult next question is what constitutes a week?
In essence, that will be different for different workers; some may work a one-day week, some may work a three-day week, and some may work completely different hours from one week to the next. Part-time workers are entitled to 5.6 of their weeks, not 5.6 weeks in the literal sense, and the question is how employers define what a typical week is.
Recently released government guidance suggests that for those workers who do not have a regular working pattern, holiday entitlement should generally be kept in weeks, as this will make it easier to track. That means employers could calculate average days or hours worked each week based on a suitable reference period (although the guidance notes that the WTR do not expressly provide for this).
Let’s say that over a 12-week period, an employee works a total of 36 days on a completely random shift pattern. On average, that works out at three days per week, so for this particular employee, a week’s leave means three days.
Once you know what constitutes a week’s leave, you’ll be able to calculate the holiday pay due, which we now know is a 12-week average of pay received (increasing to 52 weeks from April 2020).
We’re available now
Calculating holiday pay is notoriously tricky, not only causing a real headache for employers but leaving the door open for underpayment claims. If you require practical support getting to grips with the rules, our highly-qualified team of Employment Law specialists can explain the correct approach based on your specific categories of worker and help you to get it right.