Do you employ zero hours or term time workers? Perhaps you are a church with an attached pre-school or maybe you hire a cleaner to work occasional or variable hours? If so, there is a change in the way that their holidays are calculated that you should be aware of.
On 20 July, the supreme court reached a verdict that fundamentally changes the way part-year and zero hour employees receive holidays. Holiday pay for people who don’t work a set pattern has often been a tricky issue. Most employers have used a method called the ​‘conformity principle’, which is designed to give people who work part of the year a pro-rata (ie proportionate) amount of holiday based on how many hours they actually work.
The calculation provided for 12.07% holiday pay for each hour worked – which in practice, equates to a little over 7 minutes’ pay per hour worked. This, in most cases, is no longer legal following this judgement. Instead, you should provide 5.6 weeks (28 days) holiday for each employee regardless of how many weeks they actually work in the year.
The backgroundThe case concerned Mrs Brazel, a music teacher who was engaged by Harpur Trust on a permanent, zero-hours contract. She worked irregular hours during term time. Harpur Trust used the 12.07% accrual system which converts the right to 5.6 weeks holiday per year into an hours worked calculation (for example 1 hour x 12.07% = 7.24 minutes).
The original case was brought in 2017 and the Employment Tribunal found in favour of Harpur Trust. In 2019, Brazel successfully overturned a case at the court of appeal. Harpur Trust, which runs Bedford Girls’ School, appealed the judgement and we have been awaiting the supreme court’s judgement, which was delayed due to Covid.
The supreme court found that despite her not working all year round, she was entitled to 5.6 weeks holiday and that her holiday pay could not be reduced pro-rata to reflect the actual hours worked during the year. The judgement is final and cannot be appealed or challenged further (unless the legislation is changed). While this decision has clarified the position and removed uncertainty, there are potential extra costs for employers.
This therefore means that workers who are engaged to work part of the year could receive proportionately more holiday entitlement than full timers.
How should you calculate holiday pay?
Holiday pay should be calculated by averaging out weekly pay over the previous 52 weeks. You should discount any weeks not worked and, where possible, work back so that you have a full 52 weeks to average.
Can any holiday entitlement be pro-rated?
Yes. The Working Time Regulations (WTR) allow for joiners and leavers part way through the year to have their holiday entitlement pro-rated as well as those who work part time (eg less than five days a week). So, if I work three days a week, I receive 16.8 days holiday.
What should I do next?
Follow these steps:
• Provide the full statutory minimum of 5.6 weeks’ paid holiday entitlement per annum.
• Calculate holiday pay by using the average of the last 52 weeks’ pay to get a weekly pay amount.
• Arrange to have any written contracts with these employees amended, if they reference the conformity principle / 12.07% holiday pay calculation, to reflect this new method of calculating holiday pay.
• Assess your potential liability for underpaid holiday pay. It is possible that back dated claims could be made. We await to see whether these will be brought to Employment Tribunal.
Clearly this is a complicated change and we have worked up some examples on our website – the link is available here.
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