Few things give employers a headache quite like trying to get to grips with holiday pay rules. Throw into the mix employees who don’t work set hours, and it can feel like bashing your head against a wall.
In recent months, we’ve learned that regular overtime should be included in holiday pay calculations, and now a recent verdict has thrown a further spanner in the works by forcing employers to abandon generally accepted methods for calculating holiday pay for part-year workers.
With the situation becoming increasingly confusing, it’s easy for employers to make mistakes and unwittingly find themselves facing claims for underpayment. In this article, we go back to basics and try and make sense of it all.
Annual leave and holiday pay laws in the UK
In Great Britain, employers must abide by the Working Time Regulations (WTR) 1998, which implement the requirements of the European Working Time Directive into British law.
Under the WTR, workers in Great Britain are entitled to a minimum of 5.6 weeks’ paid annual leave. How a week’s pay is calculated varies depending on certain rules in the Employment Rights Act. Pertinent to this latest case, if a worker does not have normal working hours, a week’s pay is taken to be the average weekly pay in the previous 12 weeks.
This will increase to a 52-week average in April 2020.
How these rules apply to workers with no set working hours can be difficult to establish. A common approach, and a method recommended by Acas in its guidance booklet for calculating the amount of holiday due to casual workers, is to say that workers accrue annual leave at the rate of 12.07% of hours worked (as 5.6 weeks is equal to 12.07% of the total hours worked in a year).
However, following a recent landmark decision by the Court of Appeal, employers are no longer permitted to subject holidays for part-year workers to a pro-rata reduction.
The Harpur Trust v Brazel & Unison
The claimant in this case, Mrs Brazel, was a visiting music teacher employed on a permanent, zero-hour contract to work at a school run by The Harpur Trust. She worked when required, with no set hours, and was paid an agreed hourly rate for the number of hours worked each month. This meant she didn’t work for the Trust during school holidays, and it was agreed that this is when she would take her statutory and contractual annual leave of 5.6 weeks.
As is common, the Trust’s annual leave policy stated that casual and term-time employees are entitled to an annual leave allowance of 12.07% of actual hours worked.
Mrs Brazel, who typically worked 32 weeks in the year over three terms, was therefore entitled to 3.86 weeks of annual leave, with each day paid at 12.07% of her salary. The Trust calculated Mrs Brazel’s earnings at the end of each term and payed her one-third of 12.07% of that figure.
In March 2015, Mrs Brazel complained to an Employment Tribunal (ET) for unlawful deduction from her wages in the form of holiday pay underpayment. She contested the Trust’s method of calculation, arguing that this bore no relation to the calculation required by the WTR and meant she received less in holiday pay than was permitted.
Instead, she said that her holiday pay should be calculated by:
- Working out her average weekly pay for the 12 weeks before annual leave;
- Multiplying this by 5.6 (statutory annual leave entitlement);
- Paying one third of this amount each term.
Mrs Brazel argued that there is nothing in the WTR to say that holidays for part-year workers like her should be subject to a pro-rata reduction.
However, the ET dismissed Mrs Brazel’s case on the basis that the Trust’s means of calculating holiday pay entitlement meant she received proportionately the same as a full-year employee.
Employment Appeal Tribunal
Subsequently, Mrs Brazel appealed the decision to the Employment Appeal Tribunal (EAT), and this was granted. The EAT held that there is nothing in the WTR which would cap the holiday pay of a part-year worker to 12.07%.
In fact, it referred to the Part-time Workers Regulations 2000, which have as their overriding principle the concept that part-time workers are not to be treated less favourably than full-time workers. There is no principle to the opposite effect.
Court of Appeal verdict
After a lengthy legal battle, the case eventually ended up before the Court of Appeal (CoA)
Here, the Trust drew attention to the fact that adopting Mrs Brazel’s method would mean that she received 17.5% of her annual earnings in holiday pay compared to the usual 12.07%. They argued that as Mrs Brazel worked fewer weeks than the standard working year, her entitlement should be pro-rated accordingly. Her way, they said, would mean Mrs Brazel was paid proportionally more in annual leave than full-time employees.
However, despite this fact, and the fact that this method of calculation could incur bizarre results (such as enabling a person working just one week a year to claim 5.6 weeks’ holiday), the CoA held that the WTR make no provision for pro-rating. They simply require, as Mrs Brazel maintained, the straightforward exercise of identifying a week’s pay and multiplying that figure by 5.6.
It’s important to note that the judge distinguished between employees whose hours are variable and not guaranteed, meaning they may not work at all during certain parts of the year (as in the above case), and employees who are on a part-time contract but who have normal working hours (e.g. Monday to Wednesday each week for a full year). For the latter, pro-rating holiday entitlement is permitted.
So, how much annual leave and holiday pay are part-year workers entitled to?
The Court of Appeal’s verdict confirms that staff employed on a zero-hour contract, who may not work or be paid for certain parts of the year, are still entitled to receive a minimum of 5.6 weeks’ annual leave – and this should be paid at the rate of a week’s pay (or based on the average payment for the preceding 12 weeks, if work is irregular).
Director of Legal Services
This is one of the most controversial decisions I have seen for quite some time. Whilst the legal reasoning of the court appears accurate, most employers will struggle with the concept of allowing part time employees proportionately more holidays than their full-time counterparts.
As is typical with a case like this, it is difficult to work out the practical implications. I have seen many reports stating that this means all zero-hour employees are now entitled to 28 days holiday per year, but I don’t think that is correct. The court doesn’t say that, instead confirming the entitlement is to 5.6 weeks. The key question for employers now is what constitutes a week? Further, how is that calculated for someone who has no set hours?
The judgment contains no direction in that regard, so we are working hard to assess the options open to employers and hope to release further guidance shortly.