Do you need to change how you calculate holiday entitlement?
The Supreme Court has recently handed down an important judgment in the long running case of Harpur Trust v Brazel concerning the amount of paid leave that a part-year worker is entitled to.
A part-year worker is a worker who is employed under a permanent contract but works for varying hours each week and for irregular weeks throughout the year. This would include term time workers as well as individuals employed under zero hours or casual contracts who may not work every week of the year.
What does the law say?
Under the Working Time Regulations 1998 (the Regulations), all workers are entitled to 5.6 weeks of paid leave per year. Under the Regulations, for workers with variable hours, each week of leave should be paid by reference to their average weekly earnings across the previous 52 weeks that they performed work for their employer (called the ‘reference period’). The reference period should disregard any weeks where work was not performed, going back up to 104 weeks to obtain a sufficient number of weeks to include in the reference period. The 52 week reference period came into force in April 2020. Prior to this, the reference period was 12 weeks.
What were the issues in this case?
Mrs Brazel worked as a visiting music teacher at a school run by the Harpur Trust. She was employed under a permanent zero-hours contract which required her to work when needed during term-time and not during the school holidays. As a result, she worked varying hours (depending on how many pupils required lessons) and did not work at all during the school holidays.
As is common in the case of employees with variable hours, the Harpur Trust paid Mrs Brazel for her leave using the ‘percentage method’. This involved counting the hours that Mrs Brazel worked in the previous term, calculating 12.07% of this figure and paying her for that number of hours at her usual hourly rate. This is because 5.6 weeks is 12.07% of 46.4 weeks (i.e. the whole 52-week year minus the 5.6-week annual leave entitlement). The Harpur Trust argued that it was fair to calculate Mrs Brazel’s paid leave entitlement in this way as it reflected the amount of work that she actually performed.
Mrs Brazel contended that the ‘percentage method’ led to her receiving less holiday pay than she was entitled to and argued that the Harpur Trust should have used the ‘calendar week method’. This would involve calculating how many hours she worked in the previous 12 weeks (excluding any weeks where she did not work), multiplying this by her hourly rate and dividing that by 12 to give a ‘week’s pay’. This figure is then to be multiplied by the period of leave up to the full 5.6 weeks per year. As this method only took account of the weeks that she worked, this would have resulted in Mrs Brazel receiving paid holiday entitlement of approximately 17.5% rather than 12.07%.
What did the Supreme Court decide?
The Supreme Court agreed with Mrs Brazel that the Harpur Trust should have adopted the ‘calendar week method’ when calculating her paid leave. In doing so, they recognised that this would put Mrs Brazel in a more favourable position than her full-time colleagues as the pay that she received for leave would be a higher percentage of her annual salary than a worker who works all through the year.
The Supreme Court held that the ‘percentage method’ is contrary to the Regulations and is therefore an unlawful way of calculating paid leave entitlement, even though this may appear to be a fairer way to proceed. In particular, the Supreme Court noted that this method does not use a ‘week’s pay’ as required by the Regulations. The Supreme Court also noted that there is nothing in the Regulations preventing a part-year worker from being treated more favourably for holiday entitlement purposes.
What does this decision mean for employers?
This decision confirms that employers should not use the ‘percentage method’ to calculate paid leave entitlements of part-year workers, doing so is likely to cause a shortfall in paid holiday entitlement and will expose employers to claims for unauthorised deduction from wages and breach of the Regulations. Employees can usually claims shortfalls in holiday pay going back 2 years and therefore the liability may not be insignificant, depending on the number of staff affected.
Instead, employers should adopt the ‘calendar week method’ and ensure that part-year workers receive a full 5.6 weeks of leave paid by reference to their average weekly earnings across the previous 52 weeks (excluding weeks not actually worked). Where a part-year worker has worked for their employer for less than 52 weeks, their total worked weeks should be used instead. However, the judgment confirms that employers are still able to require workers to take their leave at specific times, such as during school holidays or seasonal industry closures.
This decision is likely to present problems for employers who engage term time or casual staff from an administrative perspective. The percentage method referred to above is a common way to calculate holiday for such staff because it is easy to use. Calculating holidays for term time or casual staff in accordance with the Brazel judgment will be more complex and time consuming and the employer will need to give careful thought as to how to implement any necessary changes. Staff who deal with calculation of holiday entitlement and pay will likely need further guidance and training to get it right.
This decision applies where there is an ongoing contract between periods of work. Employers may consider whether part-year workers actually need to be employed under continuous contracts. In some cases, a shorter fixed-term contract may suffice which would not necessarily present the same issues if the individual is working every week throughout the period of the contract.
If you have any queries about the issues raised above, Taylor Walton’s employment team is able to assist. Taylor Walton can also provide guidance and training to your business on these complex issues. Please contact the employment team here.
Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.
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