• Adil Khan & Kiri Thompson

Administering holiday pay for part-year workers


There's been a lot of legal activity surrounding the matter of holiday pay over the past few years. With each new judgement, it seems that the position changes. Here, we explore why employers need to acquaint themselves with how they administer holiday pay specifically for part-year workers going forward.


A recent and significant example that all employers need to know about is the case of Harpur Trust v Brazel [2022] UKSC 21.


What happened?


Mrs Brazel was a visiting music teacher at a school run by the Harpur Trust. The arrangement between Mrs Brazel and the Trust was that she took her annual leave during the school holidays, when she was not required to give lessons.


In 2015, she brought a claim in the Employment Tribunal against the Trust regarding the way they calculated her holiday entitlement and, based on that calculation, how that affected her holiday pay. The Supreme Court judgment outlines how the Trust made their calculation:


“[they] calculated Mrs Brazel’s hours worked at the end of each term, took 12.07% of that figure and paid her the hourly rate for that number of hours. The Trust say that in calculating her leave entitlement in that way, they were following the method recommended by ACAS in its guidance booklet ‘Holidays and Holiday Pay’ for calculating the pay of casual workers. 12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year. The working year is the whole year (52 weeks) minus the annual leave (5.6 weeks) and so 46.4 weeks. 5.6 weeks is 12.07% of 46.4 weeks. The…Trust therefore treated Mrs Brazel as entitled to 12.07% of her total pay for the term.”


The Trust argued the reason that they used this method was to pro-rate her holiday entitlement, and also her pay, to reflect that she worked part time and fewer weeks per year than her full-time colleagues.


The basis of Mrs Brazel’s claim was that this calculation was a breach of:

  • the Part-time Workers (Prevention of Less Favourable Treatment) Regulations,

  • Section 16 of the Working Time Regulations 1998 (the 1998 Regulations) and

  • Sections 221 to 224 of the Employment Rights Act 1996 (the 1996 Act).

In addition, Mrs Brazel argued that her holiday pay should be calculated using her average earnings over the 12-week period preceding her annual leave instead.


At the Employment Tribunal (ET), the Trust argued that the statutory entitlement of 5.6 weeks’ holiday pay should be pro-rated where an employee had worked fewer weeks than a standard 46.4 week working year. As such, as she worked term time only, her holiday entitlement was pro-rated using the percentage of 12.07% of her term only pay.


As the school year varied between 32 and 35 weeks a year, this resulted in her holiday pay entitlement being lower than if they had used her suggestion. The Trust argued they did this to prevent full-time workers being treated less favourably than part-time workers and to avoid an unjustified bonus for term-time only workers.


The ET found in favour of the Trust. They said that where a worker has no normal hours and works fewer than 46.4 weeks per year, their holiday pay should be capped at 12.07% of annualised hours.


In 2018, Mrs Brazel appealed this decision to the Employment Appeal Tribunal (EAT), which reversed the ET’s decision and decided that pro-rating holiday entitlement, and pay, by using the 12.07% calculation was not appropriate. It was emphasised that the wording within the 1998 Regulations was clear and unambiguous, and that a worker on a permanent contract who was engaged for a whole year had an entitlement to 5.6 weeks holiday. Furthermore, the EAT held that Mrs Brazel’s holiday pay should have been calculated using the 12-week averaging method as set out in the 1998 Regulations. There was, they said, no requirement to pro-rate the holiday entitlement of part-time employees (which is what the 12.07% formula achieved) including when that was done to avoid a ‘windfall’ for term-time only workers or to avoid full-time employees being treated less favourably than part-time employees.


The EAT recognised, however, that this decision might produce anomalies, based on the fact many employers have used the 12.07% calculation and it could also favour an employee in Mrs Brazel’s position who didn’t work throughout the entire school year.


In 2019, the Trust appealed the EAT decision to the Court of Appeal (CoA). The CoA agreed with the EAT that technically, Mrs Brazel was right. They concluded that workers on permanent part-year contracts must receive at least 5.6 weeks’ statutory minimum of holiday entitlement, even if they have only worked for one or two weeks a year. This was on the basis that holiday could not be pro-rated because the 1998 Regulations do not include a pro-rata principle in these circumstances.


The CoA did, however, grant the Trust permission to appeal their decision to the Supreme Court (SC).


In a unanimous decision, the SC has now rejected the Trust’s argument that the 12-week “Calendar Week Method” might result in Mrs Brazel receiving a higher portion of holiday pay than a full or part-time worker who works more or regular hours than someone in her position. Even in the case of a slight favouring of workers with a highly atypical work pattern, the SC did not deem this to be enough to justify a revision of the entire system and the 1998 Regulations.


As such, the SC ruled in Mrs Brazel’s favour, and said that she should receive the same holiday pay as staff who work all year round using the 12-preceeding week calculation method and not the 12.07% method.


Implications


The 1998 Regulations are clear that every worker and employee, no matter how many hours worked, is entitled to a minimum statutory entitlement of 5.6 weeks’ annual leave per year, which has to be paid at their normal average hourly rate, even if this means their counterparts who work full time then get less annual leave or less holiday pay when the direct comparison is made.


For those who don’t have a set salary and work variable hours, their employer has to calculate what their average pay was for the 52 working weeks which preceded them going on holiday, and that is the rate they get paid when on holiday.


Despite this case involving a person who worked in the Education sector, it is important to note that it is not just workers in that sector who are affected by this change but all those on variable/zero-hours and part-time employees in any industry.


As can be imagined, this is likely to cause a significant increase in paperwork for employers as the calculation must be done every time affected workers go on holiday.


The case began back in 2015 and has made its way through the ET right up to the SC. In the meantime, on 6th April 2020, the 1998 Regulations were amended to reflect that the reference period for calculating holiday pay increased from 12 weeks to 52 weeks (as per section 224 of the 1996 Act, and Regulation 10 (part 3)(b) of the Employment Particulars and Paid Annual Leave (Amendment) Regulations 2018) (the 2018 Regulations).


Therefore, although the SC judgment says 12 weeks – as it was at the time that the court was hearing the case - it is actually now 52 weeks.


As can be seen from even a brief summary of the case, the issue of holiday pay and the law is a complex one and something that many employers struggle to get right. Access to expert legal advice can often help businesses get their payroll sorted out and stay compliant with the law.