What Do We Learn Following New Rulings On Holiday Pay?

The Supreme Court’s ruling in November 2021 on the Harpur Trust vs Brazel case provides clarity on workers' rights on how paid annual leave is accumulated for employees on permanent zero-hours contracts.

Employers now have work to do in ensuring they accrue and pay workers properly for annual leave owed which should be accumulated according to the workers working pattern, not pro-rated down.

Case Overview

Harpur Trust Vs Brazel centred around a music teacher who worked at a school during term times on a zero-hours contract.

She doesn’t work full-time, or for the whole year but receives holiday leave at three times during the school year.

She believed she was not receiving correct holiday pay because the employer had been using the pro-rated method to calculate annual leave allowances rather than accumulating annual leave based on her working pattern.

Following an employment tribunal in 2015, where the case was decided against the worker, an appeal at the Supreme Court was successful.

Since the high-profile case ruling, The Employment Appeal Tribunal, Court of Appeal and now Supreme Court have agreed that holiday entitlement and holiday pay for ‘part year’ workers on permanent contracts (with irregular hours) should not be reduced to pro-rata but are entitled to the full statutory 5.6 weeks paid leave using the average pay for weeks they have worked in a year.

As a result, employers must now check their processes and ensure workers are treated fairly when calculating their holiday pay in the future, even though it is acknowledged that the agreed method of calculation results in workers receiving proportionately more paid holiday than a full-time worker.

What Does This Mean For Businesses?

• The Employment Appeal Tribunal, Court of Appeal and now Supreme Court have all said that the Working Time Regulations (WTR) are clear - Workers on permanent contracts who work irregular hours and only work part(s) of the year must now receive the full statutory minimum 5.6 week’s paid holiday entitlement per year.

• Their week’s pay is calculated using an average over the prescribed reference period, (usually 52 weeks), using weeks where they were paid, and not on a pro-rated basis.

• This decision does not affect using a pro-rated approach for part-time workers with regular working hours, or casual workers who are working most weeks of the year.

• The decision is of particular significance for employers in the education sector where lots of people are employed on term-time only contracts, such as sports and music teachers on irregular hours. It also affects those who engage staff on permanent zero-hours or irregular hours contracts in retail, hospitality and leisure where they only work part of the year.

• Business owners should prepare themselves for the increased monetary cost of bringing affected workers up to the full 5.6 weeks statutory annual leave allowance

• Difficult conversations may arise in the workplace between colleagues getting increased holiday pay for periods they are not working compared to regular, permanent employees

What Can You Do?

• You should review how you are calculating holiday pay for ‘part year’, permanent or irregular-hour workers to see if you need to correct your processes, amend the contract of employment or payroll processes.

• You should positively engage workers affected by this decision to mitigate the risk of workers bringing employment tribunals against you. Be aware that if you continue to use the pro-rated method, workers could claim up to two years of ‘unlawful deductions from wages’ if you continue to use a pro-rated calculation method.

• Employers can consider moving away from permanent contracts, or avoiding worker status, to mitigate their holiday pay liabilities.

• For more details on how to calculate holiday pay for workers without fixed hours or pay there is comprehensive government guidance. This was updated to take account of the EAT and Court of Appeal decisions in Brazel.

Summary

Calculating holiday pay for workers on irregular contracts has long been a tricky business for HR and payroll teams, but the new rulings provide clarity on the topic and will have a major impact on the way that companies calculate holiday pay in the future.

As a result, plenty of employers will need to review how they’re calculating and remunerating holiday pay for workers to ensure they are treated fairly concerning holiday pay.

Employers calculating annual leave entitlements for workers who work irregular hours for part of the year on permanent contracts must ensure they are not pro-rating annual leave allowance but calculating it based on actual hours worked during the year.

Next Steps

Whether you have an in-house HR team that needs support, or you fully outsource your human resources needs, you can talk to Neathouse Partners for help.

Our expert team will ensure that you have the knowledge and policies that you need in place to talk to your staff and protect you against the risk of grievances, and tribunals being brought against you when dealing with tricky topics like holiday allowances for irregular workers.