In the Harpur Trust v Brazel case, the Supreme Court upheld the Court of Appeal's ruling in 2019 that ‘part year’ workers on permanent contracts are entitled to full holiday entitlement and holiday pay, regardless of the actual hours worked during the year.
This has left many employers confused and wondering how to calculate holiday pay for workers with variable hours.
In short, workers on permanent contracts who work irregular hours must receive the full statutory minimum 5.6 week’s paid holiday entitlement per year.
Employers should calculate a week's pay for the employee by using an average over the prescribed reference period, (usually 52 weeks). You should use weeks where the employee was paid and not a pro-rated approach.
This decision will have far-reaching implications for employers, including annual administration changes regarding the way time off is recorded and allocated and increased costs to provide holiday pay to employees who previously wouldn't have received it.
Read on for simple tips on calculating holiday pay for variable hour contracts and understand more about the implications of this ruling and what it means for employers and employees going forward.
The case concerned workers who were employed on permanent contracts but who only worked during the school holidays.
The employer argued that, because they only worked for part of the year, their holiday entitlement and pay should be reduced pro-rata to reflect their actual hours worked.
The Supreme Court however ruled that the workers were entitled to full holiday entitlement and pay.
This ruling is significant as it provides protection for workers on irregular hours and ensures that they are not disadvantaged in comparison to other workers.
Employers in the UK are required to give their workers paid time off for holidays, but there is some confusion about how to calculate holiday pay for those who work variable hours.
The recent case of Harper Trust vs Brazel has clarified the situation, so you should ensure that;
To provide full holiday entitlements to all employees, regardless of how many hours they work during the year, which includes when a worker does not work fixed or regular hours and so does not receive the same amount of pay each week, month or another pay period:
View guidance on holiday pay for workers without fixed hours or pay
To calculate holiday pay, you will need to take into account the employee's normal rate of pay.
This is the amount that they would normally earn for the hours worked in a week.
The ruling means that employers must provide full holiday entitlements to all employees, regardless of how many hours they work during the year.
This includes employees who are on permanent contracts but only work for a portion of the year.
This ruling will likely lead to increased costs for employers, as they will now be required to provide holiday pay for employees who may not have otherwise been entitled to it.
If you employ workers on a part-year, term time, zero hours, casual basis, or operate a 'rolled up' holiday pay structure, then you should act now.
Due to the publicity this case has generated, employees are likely to be aware of the changes and want to raise questions.
Additionally, with the Christmas holiday season just around the corner, annual leave requests will be coming in thick and fast, so you need to know how to answer the questions and how to calculate holiday pay for affected employees.
What should you do? We encourage you to be prepared and review if you have any staff affected by the rulings.
Check how you're currently calculating their holiday entitlements, and make the changes required to meet the rulings.
You should then make sure that all staff contracts, handbooks, and payroll procedures are changed if needed, to reflect the new position on holiday pay for workers on variable workers.
If you would like support with managing and understanding your HR and employer responsibilities towards workers on variable hours contracts, please contact us.