This briefing applies to zero hour and casual workers. It also applies to workers who only work part of the year e.g. those who work in education.

Please ensure that you refer to the ‘The Practicalities’ section at the end of this document.

Background

Summary: A part-year worker who is employed for the whole year but only works some weeks and not others is entitled to the full 5.6 weeks’ holiday per year rather than a pro-rata calculation based on their reduced hours.

The recent Supreme Court case of Harpur Trust v Brazel looks set to change the way in which holiday leave is calculated for certain types of workers, including part-year workers and zero-hours workers.

In this article, a part-year worker means someone who is employed for the whole year but only work some weeks and not others. The most common example is a teacher working term-time only. A part-time worker is someone who works fewer hours than standard full-time hours, but often the same hours each week. An individual can be a part-year worker and a part-time worker at the same time.

Until the Supreme Court Judgement there was uncertainty over the types of employees and workers that this case would apply to.

This new case does not affect part-time workers, who work the same hours each week (and who are not part-year workers). Workers who work regular hours but who leave part way through a year, will only be entitled to pro-rata annual holiday entitlement as has always been the case.

Ms Brazel worked part-time and part-year as a music teacher at Harpur Trust School, on a zero-hours contract. Her hours varied from week to week and she did not work at all in the school holidays.

Before September 2011, when calculating her holiday pay, the school had taken her average weekly pay over a 12 week period (excluding any non-working weeks such as half term holidays) and multiplied that by 5.6.

5.6 is the minimum number of weeks of holiday to which a worker is entitled each year (including any entitlement to public holiday). This is known as ‘the averaging method’.

Ms Brazel was paid for her holidays three times a year and deemed to have taken holidays during the Easter, Summer and Christmas/ New Year school holidays.

In 2011, Harpur Trust changed how it calculated her holiday pay. The new method (‘the 12.07% method’) involved a pro rata calculation, as follows:

• A full time worker would be entitled to 5.6 weeks of holiday per year. (This includes the allowance in respect of bank holidays and would be 28 days per year for someone with standard hours, but a smaller amount for someone who works part-time.)
• Therefore, as a part-time and part-year worker, Ms Brazel would be entitled to the pro rata equivalent of this amount.
• In order to calculate this pro rata allowance, the school divided 5.6 weeks (the standard holiday allowance per year) by 46.4 weeks (the number of working weeks in a year, not including the 5.6 weeks of statutory annual leave). This leaves a figure of 0.1207, or 12.07%.
• Ms Brazel was therefore paid an extra 12.07% of her normal salary, to cover her holiday pay.
• This holiday pay took into account the fact that there were periods of the year (school holidays) when she did not work at all (because she was only paid the rolled up holiday pay on the hours that she worked), and was thought by the school to be fair to both full-time and part-time workers.

This is a fairly common way of working out holiday pay, and was in line with ACAS and Government guidance at the time.

However, Ms Brazel and her union thought that her holiday pay should go back to being calculated using the averaging method. This would have resulted in a higher amount of holiday pay; if the averaging method was adopted, Ms Brazel would have received the equivalent of 17.5% of her pay as holiday pay, rather than 12.07%. Rather than getting the pro rata equivalent of a full-time worker’s allowance, she would get proportionally more than full-time workers, when the actual hours worked were taken into account.

Ms Brazel thought that she was owed this higher rate of holiday pay. She claimed that there had been an unlawful deduction from her wages and that she had been treated less favourably on the grounds of her part-time status. When the case went to the Employment Tribunal, the Tribunal decided that where a worker has no normal hours and works fewer than 46.4 weeks per year (ie is part-year), their holiday pay should be capped at 12.07% of annualised hours. The Tribunal’s reasoning was that, although this capping was not mentioned in the Working Time Regulations 1998 (WTR), not doing so would result in full-time workers being treated less favourably than part-time workers, and that this would not be fair or logical.

Ms Brazel appealed. The Employment Appeal Tribunal (EAT) agreed with her. It concluded the following:

• Her holiday pay should have been calculated on the averaging method, not the 12.07% method. (Note that when this case was first in the Tribunal, the reference period for calculating the average was 12 weeks; it has since been changed to 52 weeks.)
• This method may result in proportionally more holiday pay for term-time only workers, but so be it. It was important to follow the WTR and not read into it words which were not there. It was also not practical to completely rewrite the WTR just because a small minority of workers like Ms Brazel were slightly better off than their full-year colleagues.
• Full-time workers must not be treated more favourably than part-time workers. However, there is no legislation preventing full-time workers being treated less favourably than part-time workers. In other words, the law here is on the side of the part-time workers and the principle does not work both ways.

The Court of Appeal and The Supreme Court also decided in Ms Brazel’s favour.

The Consequences

The outcome brings about some strange scenarios:

• A person who works two and a half days per week, every week, will get 50% of the holiday entitlement of someone who works five days a week. However, someone who works for six months a year and not for the other six months a year but who is on a permanent contract will get 100% of the holiday allowance of someone who works every week, all year. These two people could work the exact same number of hours over a year but get completely different amount of holiday.
• A person who is employed on a permanent contract but who only works full-time during December to cover the Christmas rush and does not work at all during the other months of the year would be entitled to the full 5.6 weeks of holiday. This would be more hours of holiday than the hours they actually worked. However, this principle only applies if the individual continues to be employed but not actually work during the other months of the year, i.e. is on a permanent contract rather than a temporary contract lasting only for December

The important points to note for employers are:

• For part-time workers with regular weekly working hours, no change is needed to their holiday pay.
• The 12.07% method of calculating holiday pay should no longer be used for permanent zero-hours workers or term-time-only workers.
• Zero-hours workers on permanent contracts have a right to 5.6 weeks’ holiday every year, regardless of the number of weeks they actually work.
• Holiday pay for zero-hours workers must be calculated based on their average weekly remuneration in the 52 weeks immediately preceding the holiday (see below for further clarification)
• For workers employed on temporary contracts (e.g. they only work during December in a Christmas decorations shop), the 12.07% method may still be lawful for them when set up appropriately. It is likely that more people will now be employed on temporary discreet separate short-term contracts, rather than permanent over-arching contracts. This may be easy enough in the case of someone who works one month every year but it would be highly impractical for teachers and would present its own legal problems regarding continuity of service.

There are two separate issues to consider. Firstly, is the question of how to calculate holiday leave.

Calculating Holiday Leave for Part-Year or Zero Hour/ Casual Workers

Workers who are in employment for a full leave year are entitled to 5.6 weeks’ annual leave (including their allowance in respect of bank holidays). The number of hours paid for each holiday week will be based on average hours worked (see below). In all cases, employers must ensure that each worker receives at least 5.6 weeks’ annual leave per year (paid based on average hours worked).

Calculating holiday pay for irregular work going forward

The question now arises. How best should employers calculate holiday and holiday pay for part-year workers, casual workers, and others with irregular hours, so as to be legally compliant? The only reliable answer is now to use the Calendar Week Method. If the worker takes a week’s holiday, they should be paid a week’s pay calculated according to the statutory formula. This may produce a different rate of pay each time holiday is taken.

The Calendar Week Method. For casual workers with no normal hours, including workers on a zero-hours contract, the holiday pay they receive will be their average pay over the previous 52 weeks worked. The reference period must include the last 52 weeks for which they actually earned, and so excludes any weeks where no work was performed. This may mean that the actual reference period takes into account pay data from further back than 52 weeks from the date of their leave (but should go back no more than 104 weeks; if this gives fewer than 52 weeks to take into account, then the reference period is shortened to that lower number of weeks).

ACAS states that if a worker gets a small amount of pay for a week, for example Statutory Sick Pay, then the employer should use another week where they received their usual pay for calculating holiday. This is because of the principle that an employee should get paid the same when they’re on holiday as when they’re at work.

However, there is still a difficulty in expressing the holiday entitlement in terms of days or hours. If a worker works a different number of hours or days each week (and sometimes may work no hours at all), how does the employer quantify their annual leave entitlement in days (or work out the appropriate rate of pay for a day’s holiday?) The Working Time Regulations 1998 provide no clues at all. One possible solution is to base it on the number of days in an average week over a representative period (see BEIS guidance: How to calculate holiday entitlement for workers on different types of contract).

For example, if the average week is 2.5 days long, then a day’s holiday equals 1÷2.5 or 0.4 of a week. It should therefore attract 0.4 of a week’s pay, and would reduce the remaining holiday entitlement from 5.6 weeks to 5.2 weeks. (If there is no standard length for a working day, a similar exercise could produce holiday entitlement in hours).

Moving away from permanent contracts

Some employers may react to this case by changing the way in which they use zero-hours contract (for example, by ensuring that zero-hours workers are given at least some work every week when they are not taking annual leave). In other cases involving term-time workers like Mrs Brazel, it may be possible to engage the worker at the start of term on a fixed-term contract for the term, give a week’s paid holiday during half term, and a payment in lieu of any outstanding accrued holiday at the end of term, before re-engaging again after the school holidays. (This may potentially lead to questions as to whether continuity is preserved under an umbrella contract where the worker is an employee, and whether continued use of fixed-term contracts after four years is objectively justified).

The Practicalities

1. If an employer can argue that the worker was engaged under a number of discreet stand-alone contracts then they may be able to argue that this case does not apply.
2. It is likely that any worker who tries to claim with regard to wrongly paid back holiday pay will be limited to a retrospective maximum of two years normally from the date their claim is lodged with the Employment Tribunal.
3. An individual normally needs to bring a claim within three months of the last pay day before termination. There is also the possibility that if an employer commences paying the correct holiday pay and entitlement, the worker may only have 3 months to commence legal proceedings to bring a claim for any back pay.
4. The government has announced it is reviewing employment law legislation which has arisen from the European Union membership. This may well fall into that category, although it partly arises from UK legislation.
5. If our past experiences of the number of claims which workers could bring in respect of incorrect holiday pay is an indication for the future, the number of actual claims will be very limited, however, this will vary from sector to sector. In theory workers could have lodged claims at the Employment Tribunal on this issue since 2018 (although they would have been stayed pending this recent Supreme Court Decision).  We expect to see claims in heavily unionised sectors e.g. education but time will tell whether there will be large number of claims elsewhere.

If you have any questions, please give us a call on 01392 247436 or email enquiries@perspectivehr.co.uk.