How To Calculate Holiday Pay For Workers With Variable Hours

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.

• Employers are now required to provide full holiday entitlements to employees even if they 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.
• This ruling is a victory for workers and will ensure that all employees are treated fairly and equally when it comes to holiday entitlement and pay.

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.

What Was The Case About?

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.

Calculating Holiday Pay For Variable Hours

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;

• Workers on permanent contracts who work irregular hours and only work part(s) of the year must receive the full statutory minimum 5.6 weeks 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.
• The amount of pay that a worker receives for the holiday they take depends on the number of hours they work and how they are paid for those hours.
• Pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work and working.

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:

• You should look back at a worker’s previous 52 paid weeks (known as the holiday pay reference period) to calculate what that worker should be paid for a week’s leave.

View guidance on holiday pay for workers without fixed hours or pay

Holiday Pay Considerations

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.

• To calculate holiday pay, you will need to take into account any overtime hours that the employee works.
• Holiday pay should also take into account any shift allowances or other forms of payments that the employee receives. These should be included in the holiday pay calculation.
• Once you have calculated the holiday entitlement and pay, you will need to record this information in your payroll system. This will ensure that the correct amount is paid to the employee when they take time off.
• You will also need to keep records of the hours worked by each employee. This will help you to calculate the correct holiday entitlement and pay when it is time for the employee to take their holidays.

What Does The Ruling Mean For Employers?

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.

What Should You Do Now?

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.

Next Steps 

If you would like support with managing and understanding your HR and employer responsibilities towards workers on variable hours contracts, please contact us.