The Supreme Court clarifies the position on holiday pay for part year workers with variable hours

Decision

The Supreme Court has ratified the decisions of the Employment Appeals Tribunal and the Court of Appeal in dismissing the case of Harpur Trust.

This means that workers who do not work throughout the entire year are entitled to 5.6 weeks paid leave each year, rather than a pro-rated equivalent for the amount of hours they work.

Background

The Working Time Regulations 1998 (WTR) entitles all workers with the right to 5.6 weeks paid leave each year. However, the position has always been more complicated for those members of staff who have variable hours and do not work throughout the year (Part Year Workers).

The approach taken by many was to apply a formula which was set out in ACAS Guidance for calculating holiday pay for Casual Workers. This formula took the fact that the statutory holiday entitlement of 5.6 weeks under the WTR was equivalent to 12.07% of a full time employee's hours, therefore to calculate the holiday pay of those who did not work a full year was to take 12.07% of their annualised hours to come to their holiday entitlement.

This approach was taken by Harpur Trust, a Charitable Trust that run a number of Independent Schools. Mrs. Brazel was a 'visiting music teacher' employed by the Trust. She was employed, during term time only, on a zero-hour contract with the amount of her hours varying each week and typically worked 32 weeks per year over three terms, which entitled her to 5.6 weeks holiday per year. Following ACAS guidance on the holiday pay of casual workers, the Trust calculated holiday pay at 12.07% of her annualised hours, which was payable in instalments at the end of each term. This is known as the Percentage Method.

This was contested by Mrs. Brazel as non-compliant with the WTR, Mrs Brazel contested that her holiday pay should have instead be calculated under s.224 of the Employment Right Act, by using the 12 week reference period to calculate how much she had earnt during that 12 week period to base holiday pay on. This is the calculation which is used for employees who work variable hours per week but are employed throughout the year. This is known as the Calendar Week Method. Crucially the Calendar Week Method discounts periods where the worker is not paid. This can result in these Part Year Workers receiving a higher proportion of pay compared to full time counterparts, in this case Mr Brazel calculation's calculations to 17.5% rather than 12.07%.

The Supreme Court have now confirmed the decisions of the Employment Appeals Tribunal and the Court of Appeal, that the Calendar Week Method is the correct means of calculating holiday pay for Part Year Workers.

Impact of decision

Whilst the decision will provide welcome clarity to employers, and the calculations involved in the Calendar Week Method are more straightforward that those used in the Percentage Method, there are likely to be serious consequences as a result of this decision for any organisation which has Part Year Workers.

Additionally whilst the Supreme Court decision dealt with those members of staff who worked variable hours, the impact of the decision means that the Calendar Week Method is almost certainly going to be the correct method for Part Year Workers who also had more stable working hours.

The first thing all employers should do is check how they have been calculating holiday pay for Part Year Workers. If you have been using the Percentage Method to adapt a popular phrase, the best time to make the change to the Calendar Week Method was 2 years ago, the second-best time is now!

Employers should also be wary of historic claims now being made against them. Some unions have lodged Tribunal claims on a protective basis against some organisations that have previously used the Percentage Method, there is a real risk that if you have used the Percentage Method recently then you may receive claims for historic losses. You should therefore be mindful and ensure you have processes in place to deal with any claims that may be brought against you.

As the Calendar Week Method can also result in some workers receiving significant amounts of holiday pay when compared to their full time counterparts, employers may want to revisit how they deal with certain issues where they may have employed members of staff for short periods due to the added cost of holiday pay on these workers.