If your business employs part-year workers, a recent ruling by the Supreme Court means you may have to change the way you calculate their holiday pay.
Upholding a previous decision by the Court of Appeal, the Supreme Court has ruled that employers of part-year workers can no longer calculate their holiday entitlement on a pro-rata basis.
Instead, the employee is entitled to the same statutory 5.6 weeks of paid holiday as any other employee — even if this means they receive a proportionally higher amount of holiday pay than employees who work all year round.
What’s the story?
The case, Harpur Trust v Brazel, concerned Lesley Brazel, a visiting music teacher at Bedford Girls’ School, which is run by the Harpur Trust. Ms Brazel’s working arrangement meant that she typically worked between 10 and 15 hours per week, although this varied according to demand. Ms Brazel only worked during term time, which amounted to about 32 weeks each year.
Until 2011, the Harpur Trust calculated Ms Brazel’s annual holiday pay by working out her average weekly pay and multiplying this by 5.6. Ms Brazel had an agreement with her employer that meant she would take her holidays in three blocks during the spring, summer, and winter holidays. This means that she received three payments for the equivalent of 1.87 weeks of pay throughout the year.
However, in 2011, the trust started using the 12.07% method to calculate Ms Brazel’s holiday pay. This involves taking the total number of hours Ms Brazel had worked at the end of each term, calculating 12.07% of that figure and paying her for those hours at her usual hourly rate.
This calculation is based on the 5.6 weeks of statutory paid holiday that full-time employees are entitled to, which amounts to 12.07% of the total working year of 46.4 weeks. The Harpur Trust claimed that this was a fair way of calculating holiday pay for an employee like Ms Brazel, who only works part of the year. However, because Ms Brazel only worked for part of the year, it meant that she received less holiday pay under this calculation method than the previous one.
Ms Brazel brought a claim against the Harpur Trust for underpayment, arguing that she was entitled to 5.6 weeks of paid holiday — which was also stated in her employment contract.
What was decided?
The Supreme Court ruled in Ms Brazel’s favour, upholding a previous decision by the Court of Appeal. The ruling states that there was nothing in the relevant legislation that justifies Ms Brazel receiving less holiday pay than other employees.
This means that any organisation that employs part-year workers must pay them for 5.6 weeks of holiday per year. In the case of workers who work irregular hours, employers should calculate their average weekly pay using the ‘Calendar Week Method’, as defined in the Working Time Regulations 1998 (WTR).
To calculate holiday pay using this method, an employer must use the employee’s average weekly pay over a reference period of 12 weeks, not including any weeks when the employee didn’t work. For example, an employee who worked an average of 22 hours per week over the past 12 weeks and who is paid £20 per hour would be entitled to 5.6 weeks of holiday pay at the rate of £440 per week.
If the 12-week reference period included two weeks when the employee didn’t work at all, their employer would have to go back a further two weeks when calculating their average weekly pay, discounting the two weeks when they didn’t work.
Who does the ruling affect?
The ruling will affect any organisation that employs people for only part of the year. It is important to note that this ruling only affects so-called ‘part year’ workers, the definition of part year being, those who work varying hours during certain weeks of the year but remain employed throughout the relevant period.
This typically means teachers and other school staff but might also include those who work in nurseries, after-school care or holiday clubs, or seasonal employees like gardeners or wardens.
How will businesses be affected?
Going forward, employers will no longer be permitted to use the 12.07% method or any other method of pro-rating holiday pay for part-year employees.
Some employers might even face claims from part-year employees demanding back pay for holiday pay calculated on a pro-rata basis in the past. To avoid future claims, employers might want to consider engaging employees on fixed-term contracts for the periods in which they work, with no continuity in between.
Organisations with part-year employees should take the opportunity to conduct a full audit and check that the way they currently calculate holiday pay is in line with the Supreme Court’s ruling.
