Holiday Pay
Holiday pay has long been a tricky issue for workers who do not work ‘typical’ hours, by which we mean workers who have no set pattern of work; this could include zero hours workers and term time workers.
On 20 July 2022, the Supreme Court issued an important judgment which will have a significant effect on the way in which some of these workers are paid for their holidays.
The Harper Trust v Brazel is a case involving a visiting music teacher who was paid hourly and worked term time only. Under the Working Time Regulations (WTR) workers are entitled to 5.6 weeks’ annual leave per year. As a term time worker, the Trust paid Ms Brazel holiday pay for annual leave which had to be taken during the school holidays based on a method of 12.07% of the hours worked (and, therefore, pay received) over the year. This has long been a common method of working out holiday entitlement for atypical workers. This is because 5.6 weeks equates to 28 days; 28 days as a percentage of the 232 working days in a year (i.e. 260-28) equates to 12.07%. It is the same figure which is used for the controversial practice of rolled up holiday pay.
However, the Supreme Court has now ruled that this is unlawful as it is not a prescribed method of calculating holiday pay under the WTR. Instead, the Court has ruled that holiday pay for part-year workers should be calculated using the averaging method (over a period of 12 weeks at the time of the claim, now 52 weeks), ignoring any weeks that have not been worked.
The decision does not affect the holiday entitlement for part time workers who work say 3 days per week every week on a permanent contract, where the pro rata principle still applies. The Court explained that this judgment affects those “workers who work for varying hours during only certain weeks of the year but have a continuing contract throughout that year.” These ‘part year’ workers who are engaged under a permanent contract, and who have, to date, been allocated holidays based on the 12.07% calculation method, will now be entitled to receive a greater entitlement of 5.6 weeks per year.
The Court summarised the position as: “In short, the amount of leave to which a part-year worker under a permanent contract is entitled is not required by EU law to be, and under domestic law is not, prorated to that of a full-time worker.”
There is no doubt that this judgment will have a significant impact on the education sector, but it is also likely to have an impact on so called ‘umbrella companies’ or with any organisation operating an overarching “umbrella contract” if workers could demonstrate that they are engaged on a ‘permanent contract’ with the company and therefore benefit from the full 5.6 weeks of holiday entitlement. In short, the judgment will affect any employer which has agreed term time working arrangements with its employees and is using the 12.07% basis of calculating holiday pay. It may even be the case that workers on zero hours contracts could claim this entitlement if they are engaged on a permanent contract (i.e. an open ended contract, rather than a number of short term assignments).
There are a number of practical considerations for affected employers to bear in mind: in particular, employers could be faced with a situation whereby other permanent workers will receive less holiday entitlement/pay than term time workers which may lead to unrest and friction. The Supreme Court acknowledged this decision could result in term time workers benefitting from a higher proportion of their annual pay than full time or part time workers working regular hours. However, it concluded that a slight favouring of workers with a highly atypical work pattern was not so absurd as to justify the wholesale revision of the Working Time Regulations.
The effect of this will start to be felt over the coming months. The 12.07% calculation should no longer be used given the risks that this may not confer the correct 5.6 week holiday entitlement. Employers may need to reassess their arrangements if they regularly engage zero hours workers on long term contracts. Whilst is seems like an administrative nightmare, employers may decide to engage these workers on short term assignments rather than a permanent, open-ended contract. Otherwise, it seems that zero hours workers on a permanent contract will be entitled to 5.6 weeks of holiday/pay. We can see arguments being run that zero hours workers are entitled to 5.6 weeks of holiday entitlement and pay from multiple employers (based on the average number of hours worked over a 12 month period). Even for those contracts where work is guaranteed, for say 15 hours week, these workers will be entitled to 5.6 weeks of holiday and pay is based on the average hours worked (as this could be more than 15 hours per week).
Importantly, any claims for unpaid holiday could go back up to two years and employers who engage these types of workers should now carry out an audit to assess any potential risk of historical claims for holiday pay.