- What are the issues?
There are two central and closely related issues which are:
- how should holiday entitlement be calculated for part-year workers; and
- how should holiday pay be calculated for part-year workers.
In the case of Brazel v The Harpur Trust, these issues were discussed by reference to a term-time only music teacher at a school, but the case has much wider significance than that.
- The background
A worker has a statutory right to 5.6 weeks’ holiday a year. This means that a 52 week a year worker accrues 5.6 weeks paid holiday for each 46.4 weeks worked, i.e. at a rate of 12.07%.
It has been customary (and indeed recommended by the Government and ACAS) to use the rate of 12.07% to calculate holiday pay for part-time and part-year workers. In the Harpur case, it was held that the employer could not simply apply that method to part-year workers.
- Can you explain why this causes a problem?
Yes. The Working Time Regulations 1998 (WTR) say that a worker is entitled to be paid for each week’s holiday at their Normal Weekly Pay (NWP). NWP is calculated according to a formula found in the Employment Rights Act 1996 (ERA). For full time workers this is usually satisfied by the 12.07% enhancement as described above.
On the one hand applying the strict wording of the WTR/ERA to part-year workers can give them a much higher accrual rate than full time workers (which could be thought to be unfair), but not applying it can give them less holiday pay than is required by the strict calculations required by the WTR/ERA.
- What did the Court of Appeal decide?
The Court of Appeal said that it did not matter that a part year worker had a higher accrual rate, and employers simply had to follow the normal methodology for any worker based on ERA formula.
This means that for workers who have normal working hours that vary over a week (or longer period such as a term), or indeed that have no normal working hours at all, the employer should count back 12 weeks to find the average hours worked. Any week not worked should be ignored.
- Does a part time worker get less holiday than a full time worker?
No. Every worker is entitled to 5.6 weeks’ holiday. However, a “week” for a part time worker will be however many days she is contracted to work each week plus the days she is not contracted to work in the week. The idea is that whatever the working pattern, she is entitled to one whole week off for each week of holiday.
- Does this mean a part-time worker gets paid holiday pay for days they wouldn’t otherwise work?
No. The part time worker will only get paid for each week’s holiday at her NWP, which will reflect the reduced hours worked.
- How does this work in practice?
Take Amy and Betty.
Amy works 20 hours a week at £15 an hour, 46.4 weeks a year (full time). She is paid £13,920.
Betty works 20 hours a week at £15 an hour, 32 weeks a year (term-time only). She is paid £9,600.
Each is entitled to 5.6 weeks’ statutory holiday.
For Amy this means she is entitled to 5.6 weeks’ holiday at £300 each week = £1,680 holiday pa . This is an accrual rate of 12.7% (£13,920 x 12.7% = £1,680) and the equivalent of 112 hours pay in the year.
If Betty were paid on 12.07% principle, she would get only 77.25 hours holiday pay. The calculation would look like this:
32 x £20 x £15 = £9,600 x 12.07% = £1,158.72.
£1,158.72/15 = 77.25 hours.
However, the correct approach is to calculate average hours worked over a 12 week period, ignoring any weeks not worked, and then apply the 5.6 weeks entitlement. Assuming she works the same working pattern prior to each calculation date, she would also be entitled to 112 hours holiday. The calculation then looks like Amy’s:
5.6 weeks x £300 = £1,680
£1,680/£15 = 112 hours
Therefore, Amy and Betty have the same holiday entitlement and the same number of hours of holiday pay as a result, even though over the course of a year, Betty works fewer hours. This is because the weeks she doesn’t work are ignored.
- Doesn’t this give a much higher accrual percentage?
Yes. Amy gets paid £1,680 holiday pay on £15,600 basic salary i.e. at 12.7%.
Betty gets £1,680 holiday pay on £9,600 basic salary i.e. at 17.5%.
Doesn’t this lead to some fairly extreme results?
Yes it could. For example, an invigilator who works one week a year for which he receives £1,000, would be entitled to 5.6 weeks’ holiday at the NWP of £1,000 i.e. £5,600. The Court of Appeal in the Harpur case recognised this issue but suggested those individuals could be engaged on a self-employed basis.
- What about staff with variable hours?
The same principle applies: count back 12 weeks (ignoring any weeks not worked) to get average pay, then apply the 5.6 weeks.
Charlie is paid £15/hour and works on a repeating rota over a 52 week period as follows:
- Week 1 – no hours
- Week 2 – 5 hours
- Week 3 – 3 hours
- Week 4 – 7 hours
The first week is ignored, as no hours are worked. We therefore look for 12 worked weeks to get an average. Applying an average of 15 hours over a three week period (5 + 3 + 7), multiplied by four (to get twelve worked weeks), we have 60 hours worked over a period of 12 weeks. This then equates to an average of 5 hours per week.
Charlie’s statutory holiday entitlement (like the other examples) is 5.6 weeks. His NWP is 5 x £15 = £75. Thus his annual holiday pay entitlement will be 5.6 x 75 = £420, or the equivalent of 28 hours, or 14.36% of his annual hours.
- What is the averaging period?
Currently the averaging period is 12 weeks. From April 2020 it will usually be one year. The calculation should be done for the day of the commencement of the leave and for workers with variable patterns will therefore most likely be different each time leave is taken.
The averaging ignores weeks in which no work is done and this can make a huge difference to the entitlement for term time or seasonal workers.
- How do I apply this to a zero hours employee working variable hours, term time only?
The same principles apply: you work out a 12 week average at the commencement of the leave and pay the NWP, up to a total of 5.6 weeks. You ignore any weeks not worked.
- When should holiday pay be paid?
There is nothing in the WTR to determine when payment in respect of statutory holiday should be paid. However, the direction of case law in this area suggests that holiday taken in a particular month should be paid at the normal payroll date for that month.
- Can I make a balancing payment?
In principle, a worker is entitled to 5.6 weeks’ pay, at the pay rate applicable at the calculation date which is the first day of leave. So where a worker’s hours vary, the actual rate of holiday pay is likely to be different each time you calculate it.
From April 2020 the reference period will be one year not 12 weeks so the variations are likely to be smaller, but may still be material.
Some employers deal with this by paying a flat rate and making a balancing adjustment at the end of the year. Arguably, making a balancing payment may involve paying an element of “rolled up holiday pay” (see below) and if you propose to do this you should ensure that you have agreed this in writing with the worker before you do it and make it clear in the payslips what has happened.
- Can I pay rolled up holiday pay?
Rolled up holiday pay is where you do not actually pay holiday pay at the time of the holiday, but pay it in an enhanced rate while the worker is working. This practice is generally considered unlawful, but is still often done for workers on fractional working patterns. If you propose to do this you should ensure that you mitigate the risks by agreeing it in writing with the worker before you do it and make it clear in the payslips what has happened.
- What about the first year of employment?
During the first year of employment (not just the remainder of the initial leave year), the amount of the leave entitlement that the worker can take is governed by the "accrual" provisions of the WTR. Leave accrues at the rate of 1/12 of a full year's entitlement at the beginning of each month.
However, whether a worker can take holiday on a given date is controlled by the notice provisions of the WTR so that an employer can prevent a worker from taking holiday (or rather, delay it until later in the year) whether or not the holiday entitlement has been accrued.
- How does the law on statutory holiday affect extra contractual holiday?
Often contracts of employment or collective agreements contain more generous holiday provisions than are required by the WTR. They may be more generous in terms of the amount of holiday or the conditions for exercising it (or both).
Where a worker has a contractual right to annual holiday as well as a right under the WTR, the worker may take advantage of whichever is more favourable. Often contracts of employment or collective agreements contain more generous holiday provisions than are required by the WTR. They may be more generous in terms of the amount of holiday or the conditions for exercising it (or both). Strictly speaking the 12 week calculation method only applies to the statutory 5.6 weeks, not any additional contractual holiday. However, an employer will need to consider whether it is simpler to have one rule applying to all holiday or, for example, if it is financially preferable to have two different systems.
- How far back can claims go?
A claim for unpaid (or underpaid) holiday pay under the WTR must be brought within three months beginning with the date payment should have been made (which in most cases will be the relevant monthly payroll date).
There are more favourable time limits (to employees) under the provisions of the Employment Rights Act 1998 which permits times to be calculated from the last of a “series of deductions”. However, the effect of the Deduction from Wages (Limitation) Regulations 2014 is that, for claims presented on or after 1 July 2015, employment tribunals can look back no further than two years from the date of the complaint when considering unlawful deductions.