Holiday pay for part-year workers
Changes to part-year holiday pay calculations - could they affect you?
Part-year workers on permanent contracts are effectively entitled to the same holiday allowance as those who work all year round, the Supreme Court has ruled.
This means that some employers could be at risk of receiving an employment tribunal claim for unlawful deduction of wages which could go back up to two years.
The Court has decided that holiday pay for part-year workers must not be calculated on a pro-rata basis in accordance with hours worked.
The Working Time Regulations 1998 state that workers have a right to a minimum of 5.6 weeks' annual leave and that holiday pay for workers with irregular hours should be calculated taking into account their earnings over a period of 52 weeks, regardless of the hours worked.
Why has holiday pay come under the Supreme Court's spotlight?
The landmark case of Harpur Trust v Brazel has brought the issue to public attention.
Ms Brazel was a school music teacher working during term-time only. She was employed under a permanent zero hours contract and worked variable hours during the academic year.
Her contract of employment stipulated that she was entitled to 5.6 weeks of annual leave to be taken during the school holidays and her holiday pay was calculated using her average earnings for a period of 12 weeks multiplied by 5.6 weeks.
However, in 2011, the Trust changed the method used to calculate holiday payment to what's known as the "percentage method" consisting of 12.07% of the hours Ms Brazel had worked in a term. This resulted in Ms Brazel receiving less holiday pay than in previous years which prompted her to bring an employment tribunal claim against the Trust.
It is important to note that the ACAS guidance at the time (which has now been amended) allowed the percentage method of 12.07%, calculated by dividing 5.6 weeks' annual leave by 46.4 (52 weeks in a year less 5.6 weeks' holiday).
When the case reached the Supreme Court, it was decided that the application of the 12.07% formula was incorrect and holiday pay for part-year workers must be calculated using the 5.6 week's holiday entitlement, considering their average earnings over a 52 weeks' period (ignoring weeks not worked) and not by reference to hours worked.
Which employees are affected by the Supreme Court's holiday pay decision?
The decision only affects employees and workers who work atypical and irregular hours and who do not work a full leave year.
As well as teachers and employees in the education sector, employees in other sectors such as retail or hospitality who work under flexible arrangements - for example, zero hours employees who don't work a full year - could also have a claim.
What are the holiday pay risks for employers?
Organisations which followed ACAS guidance and adopted the 12.07% formula must now review their contracts for part-year workers and ensure these are compliant with the Supreme Court decision.
Organisations which adopted the 12.07% formula are at risk of receiving an Employment Tribunal claim for unlawful deduction of wages which, in some cases, could go back up to two years.
Get in touch
Solicitor, Laura Ramos, is highly experienced and part of Wards Solicitors' specialist employment team. She deals with Employment Tribunal claims and provides HR support to businesses.
Email Laura: at Laura.Ramos@wards.uk.com
Ring Laura: 0117 929 2811