No pro-rating of holiday for “part-year workers”

United Kingdom

The Supreme Court has handed down an important decision on the calculation of holiday for workers who work for varying hours during only certain weeks of the year but have a contract throughout that year (“part-year workers”). The Supreme Court confirmed that employers are not able to pro-rate the annual holiday entitlement of this type of worker, therefore a part-year worker who is engaged under a contract of employment for the whole year will be entitled to 5.6 weeks annual leave under the Working Time Regulations 1998 (“WTR”), regardless of how many weeks they actually work.

This Law-Now discusses the practical impact for employers who engage workers who fall into this category.

Facts

Ms Brazel is a music teacher who works a variable number of hours each week during term time, depending on demand for music lessons, and is only paid for the hours she teaches.

In 2011 the Harper Trust began calculating Ms Brazel’s holiday entitlement by dividing the number of hours she worked in a term by 12.07%, and paying her her normal hourly rate for that number of hours as holiday pay. The 12.07% figure was referenced in Acas and Government guidance at the time as a method for calculating the holiday entitlement and pay for workers with irregular hours. (The 12.07% figure is reached by taking the 5.6 weeks statutory annual leave entitlement as a percentage of the total working year of 46.4 weeks.) The effect of this change for Ms Brazel was that she received less holiday pay than she had previously received after the Trust introduced the new calculation method from 1 September 2011.

Ms Brazel brought a claim for unlawful deduction of wages, arguing that she should have received the full entitlement to 5.6 annual leave and that the pay for her holiday should be calculated using the method set out in the WTR. At that time, the WTR required employers to calculate a week’s pay for employees with irregular hours by taking the average weekly remuneration for the twelve weeks prior to the calculation date (the reference period has subsequently been amended to 52 weeks).

Crucially, this calculation method requires the employer to discount weeks in which the employee received no pay. The result of it is that the longer the period of the year that the worker is engaged but undertakes no work (and receives no pay), the bigger the disparity between the 12.07% calculation method and the approach under the WTR. As an extreme example (which was put forward by counsel for the Harpur Trust earlier in the proceedings), the apparent result of the WTR calculation method is that a worker engaged on a permanent contract, but who works only one week of the year for which they earn £1,000, would then be entitled to 5.6 weeks’ (notional) annual leave, for which they would be entitled to receive £5,600. Under the 12.07% calculation method, they would receive £120.70.

The Supreme Court’s judgment

Before the Supreme Court, the Harpur Trust argued that the WTR must require holiday for part-year workers to be pro-rated, otherwise they would receive a disproportionate amount of holiday and holiday pay (as set out above). However, the Supreme Court held that the WTR are clear, and do not permit the 12.07% approach or any other method of pro-rating holiday entitlement for part-year workers.

Where does this judgment leave employers?

It is important to note that this decision is limited in its application and does not mean that there is no pro-rating allowed for standard part-time workers (e.g. those working a regular pattern of reduced hours each week). It also does not apply to workers engaged under short-term contracts for part of the year only, with no contract in place during periods where they are not working.  

For employers of genuine part-year workers, the 12.07% approach will now not be defendable as a way of calculating holiday entitlement and holiday pay. Instead, employers will need to calculate the amount of holiday accrued based on the amount of the year the workers have been engaged under their contract, and then use the method set out in the WTR to calculate a week’s pay, using a reference period of 52 weeks prior to the date of the holiday being taken. The Acas guidance on this point has also been updated (see  Calculating holiday pay: Checking holiday entitlement - Acas).

Employers will also need to consider the possibility of claims for historical liability; many unions in the education sector have already raised claims on this issue. Since 2014 there has however been a two-year limit on the period for which workers can bring backdated claims for unlawful deductions from wages.

If you would like advice on how to calculate holiday pay for those workers affected by this judgment then please speak to your CMS contact.