The recent decision of the Supreme Court in Harpur Trust v Brazel, caught the headlines last month as the holiday season got under full swing. Whilst it does have implications for holiday pay, these are limited to a discrete and minority group.
This was an appeal which concerned the calculation of annual leave and holiday pay entitlements for individuals who work varying hours during only certain weeks of the year but have a contract in place throughout the year, ie so called “Part Year” workers.
Ms Brazel was a music teacher at a private school and it was accepted she was entitled to 5.6 weeks annual leave. In keeping with ACAS Guidance (which has now been re-written), the Harpur Trust would calculate Ms Brazel’s holiday pay by working out the number of hours she had worked at the end of each term, and calculating 12.07% of that figure to arrive at the number of hours holiday due, and paying her hourly rate for this number of hours. 12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year of 46.4 weeks, hence the use of this figure. This is known as the “percentage method” and effectively pro – rates the workers holiday to the number of hours they work, and has been widely used for many years following ACAS Guidance on the correct interpretation of the Working Time Regulations.
Ms Brazel was successful in persuading the Supreme Court that the amount of leave to which a Part Year worker under a permanent contract is entitled to is not required to be pro-rated to be proportional to that of a full-time worker. The Supreme Court agreed therefore that the so-called “Calendar Week” method should be used instead for calculating her holiday pay which simply meant that the number of days holiday that were being taken up to the 5.6 week annual limit should be paid by reference to the 12-week reference period ( applicable at the time) and by calculating the average weekly pay over that period. This period has been changed by legislation and is now a 52-week reference period. This finding was made even though this produced a result which meant proportionately Ms Brazel would be receiving more holiday pay than potentially full time or other part time workers who weren’t Part Year workers.
The net result of the case is that a worker or an employee, provided they remain under a Contract, have an entitlement to 5.6 weeks paid holiday in each year regardless of the amount of work done. This is normal for a full time worker but produces a potential windfall for an individual who works only a few months in the year for example under a year long contract.
As for holiday accrual it is to be based purely on the passage of time under the contract and not on the amount of work done in that time. This means that there is a system where non-working weeks are included for calculating accrued holiday entitlement but ignored when actually calculating holiday pay itself.
The anomalies created by this may not be so stark now that we have the 52-week reference period (introduced in April 2020) but the issue remains for Part Year workers and potentially affects all workers who don’t have fixed regular working hours and may be on permanent contracts (casual or zero hours workers being a good example). Employers should now use the Calendar Week method for these workers so that if they take a week’s holiday they should be paid a week’s pay according to the statutory formula ( ie using the 52 week reference period), which may provide a different rate of pay each time holiday is taken.
There may be accrued claims for underpaid historic holiday pay for these types of workers which an employer could also face.
A way of mitigating the amount of holiday pay for such workers in future could be to ensure, for example that zero hours workers are provided with at least some work on most weeks when they are not on holiday so that the holiday pay calculation is not artificially high. An alternative is not to use permanent open-ended contracts to avoid the accrual by Part Year workers when they are not working.
If the 12.07% method is to be used at all, it arguably should only be used for workers who, for the duration of their contract, are expected to do some work every week. Employers who continue to use this method may also wish to consider performing a reconciliation at the end of each year (and at the end of a contract) to ensure, in retrospect, that no workers have been underpaid their holiday pay.
If you engage Part Year staff on open ended contracts, using the 12.07% method and require advice on how to manage or change these entitlements going forwards, as well as around potential historic liabilities, then please do get in touch with one of the Employment Team