Part-year Workers Holiday Entitlements: What the Latest Supreme Court Decision May Mean for Your Workers
Thursday 1st September 2022
On 20 July 2022 the UK Supreme Court confirmed in the case of Harpur Trust v Brazel that the paid holiday entitlement of part-year workers should not be pro-rated for the weeks they do not usually work.
This means the 12.07% method used by many employers for calculating part-year workers’ holiday entitlements will no longer be permissible.
How are part-year workers’ holiday entitlements calculated?
As most employers know, the Working Time Regulations 1998 (WTR) say that all workers are entitled to 5.6 weeks’ holiday each year. Typically this means 20 days plus the eight bank holidays for a typical five day a week contract.
Under WTR, holiday pay for someone with no normal hours of work is based on their average pay over a 52-week reference period immediately before the holiday, ignoring weeks when there was no pay, and going back in time up to 104 weeks to bring earlier weeks into account to get to 52.
However it has always been a bone of contention for those employees who only work for part of the year but have rolling or overarching contracts. Seasonal workers could be an example, but more typical examples include term-time only workers such as Lesley Brazel, the original claimant in this case. She was a zero-hours employee who worked as a visiting music teacher. She was paid out her leave instead of taking holidays. She claimed she was being short-changed because of the 12.07% method.
What happened in Harpur Trust v Brazel?
The calculation can create problems with casual workers who have no set hours. Strictly speaking it is unlawful to pay out in lieu of holiday (except on termination of employment) . The idea of “rolling up holiday pay” into an individual’s hourly rate was outlawed in earlier case law.
However employers have continued the practice mainly because, under WTR, any payment made in respect of holiday periods goes towards discharging the statutory liability, such that in practice most employees would not have seen it worthwhile challenging. Indeed, previously ACAS’ guidance was that casual workers accrue statutory holiday entitlement at the rate of 12.07% hours worked. That guidance was withdrawn some time ago (because of earlier decisions in this case) and it is right to point out that the WTR never mentioned this percentage approach.
The Supreme Court has now confirmed earlier decisions that the 12.07% method can leave employees with irregular part-time hours short-changed, so cannot now be used, even though by not using it can create some real oddities! The case acknowledged that it could lead to some bizarre, windfall-type results in extreme cases. Despite that, the Supreme Court said that a slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme.
Examples of irregular working patterns.
To illustrate the point, some ludicrous examples include a seasonal worker retained on a permanent contract who works only 8 weeks of the year, earning £400 per week for that work. The worker would be entitled to 5.6 weeks’ annual leave.
Holiday pay for this leave must be calculated on their average pay over the last 52 weeks, but ignoring weeks in which they received no pay. So they would receive £2,240 holiday pay for a job that paid only £3,200.
Such examples, though extreme, highlight how this ruling affects employees under a permanent contract for the whole year but who actually work for less than a full year.
In the example above, it follows that employers are well-advised to always use temporary contracts or take such workers on a freelance basis ending after each separate period of work. So long as there isn’t an overarching contract in place then, on termination, a payment in lieu of accrued untaken holiday can be made legitimately.
Another issue arising from the case is that it has potentially opened the door to a huge number of historical claims for compensation due to underpayment of part-time and casual workers. What will be will be and such claims can only go back two years in total anyway, which may be enough to persuade many employees not to bother.
What is the advice to employers now?
Going forward is another matter. Employers should review their contracts for part-year workers now and consider changes where necessary with the benefit of specialist advice.
Another important point to note (before panic sets in) is that typical part-time workers with set hours, are unaffected by this decision. The applicable calculation of holiday entitlement is the relevant reduced number of days per week compared to a 5-day a week worker because they will still end up with 5.6 weeks of holiday at their normal rate of pay.
But the essential lesson from the case is that the 12.07% approach has gone! This potentially has an impact on all those casual workers who work under umbrella or overarching contracts and who have no fixed or normal hours of work. Such workers, even those who work just one or two weeks a year, must still receive 5.6 weeks of holiday and be paid for it at their average weekly pay calculated over the last 52 paid weeks.