Employers: Take care when calculating holiday pay ! New guidance...
Calculating holiday pay has always been a challenge for employers but the recent case of Harper Trust v Brazel seems to create further complexities for employers that they will need to carefully consider
Background
Previously, the Advisory, Conciliation and Arbitration Service (ACAS) guidance provided a method by which the amount of paid holiday due for those working atypical hours could be calculated. This was done by multiplying the earnings of the employee by 12.07% which would then give the sum of holiday pay.
However, a ruling made has since been made by the Supreme Court in this case and it is a ruling that may not be welcomed by all. The Court has ruled that employees who only work for parts of the year are entitled to 5.6 weeks of holiday pay. This is the same as employees who work all year round as per the Working Time Regulations.
Facts of the case
Ms Brazel worked as a music teacher for the Trust. She was employed on a permanent contract but only work during term times and so Ms Brazel was only paid for the hours which she taught.
Ms Brazel took her annual holiday in three blocks, one at the end of each term. Following the ACAS guidance at the time, the Trust multiplied the hours she worked by 12.07% and then multiplied that figure by her hourly rate of pay. That sum was then paid as holiday pay.
Ms Brazel argued that she should instead have had her holiday pay calculated by taking an average of her earnings over the previous 12 week period, which would have resulted in a higher amount of holiday pay than what she was originally being paid.
Judgment
The Supreme Court, Court of Appeal and the Employment Appeal Tribunal all held that the Ms Brazel was correct. It was held that the amount of leave that the employee was entitled to did not need to be pro-rated so that it was proportional to that of a full-time employee.
It was said that there is no requirement to avoid a ‘windfall’ for term-time only workers or to avoid full-time employees being treated less favourably than those who work part-year. The Court found that although this approach may give part-year workers a greater benefit than those who work the full year, it was not so preposterous to give grounds for a revision of the holiday pay calculation.
Impact on employers and organisations
This could have an impact on any employers and organisations that engage in zero-hour, term time or part year workers. i.e., workers on a permanent contract, but do not work the full year.
The judgment made by the Courts informs employers that they should not be using the ‘12.07% holiday pay’ calculations for employees who do not work the full year.
This now means that the holiday pay for those who do not work the full year will be proportionally higher than those who do work the full year
For example, an employee who works 20 weeks of the year and is paid £100 per week, will benefit from the sum of the full 5.6 weeks holiday entitlement, and will receive £560 as holiday, which is equivalent to 28% of annual pay. In contrast, an employee who works for 46.4 weeks of the year and earns £100 a week, takes the remaining 5.6 weeks, they would also receive £560 as holiday pay. Yet this is only equivalent to 12.07% of the annual pay.
|
Days Worked |
Pay |
Holiday Entitlement |
Holiday Pay |
% of |
|
20 weeks per year |
£100 per week |
5.6 weeks |
£560 |
28% |
|
46.4 weeks per year |
£100 per week |
5.6 weeks |
£560 |
12.07% |
What should employers and organisations do now?
Employers and organisations will now need to address these issues moving forward. It is important for them to review their current practice and procedure regarding holiday pay to ensure that they comply with the judgement.
Employers may also wish to perform an audit to establish which employees are on a permanent contract but only work for part of the year and so may be affected by the judgment. This will enable employers too address whether they have been paying the correct amounts of holiday pay.
Employers may want to consider moving away from employing those who work irregular house. They may wish to engage with those who are self-employed or work on a freelance basis if this is better suited for the business or organisation.
The decision made by the Supreme Court will no doubt leave a lot of room for questions. It is likely that further case law will arise in this area which should provide clarity on the unknown areas.
If you are an employer and need assistance with calculating the correct holiday pay for your employees then please contact Lawson-West Solicitors. Contact Us.
Read the full case judgment here.
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