Holiday pay for those who work only part of the year and have no contractually set hours should not be calculated on a pro rata basis, under a judgement that will affect many in the education sector.
The Court of Appeal has ruled in The Harper Trust v Brazel that part-year workers are entitled to have statutory holiday pay calculated on the basis of their average earnings over the 12-week period prior to taking leave, to calculate the week’s pay provisions set out in the Working Time Regulations 1998.
Tracy Worthington, a Partner in our Employment team, discusses the implications for employers:
Many employers have previously used a pro-rata calculation of annual pay to work out holiday pay for part-year workers without normal working hours.
This ruling is likely to mean higher holiday pay payments are due in these circumstances, with the possibility of claims for unlawful deductions where pro-rata calculations have been made in the past.
The case was brought by part-time music teacher Lesley Brazel who worked term-time at a school on a permanent contract of employment but was paid only for hours worked. These varied term to term, depending on the number of children taking music tuition.
Under the terms of her contract she was entitled to holiday of 5.6 weeks – in line with the statutory entitlement – and was required to take that holiday out of term time.
Under the Working Time Regulations (WTR), holiday pay should be at the rate of a week's pay for each week of leave.
For Ms Bezel, holiday pay was calculated by multiplying her pay for the hours she worked each term by 12.07%, a commonly used set percentage to calculate holiday entitlement for those with irregular working hours.
It is based on the relationship of statutory holiday entitlement to the remainder of the working year that occurs in a full time, all-year position and is reached by taking the number of weeks actually worked, which is 46.4 weeks (that is, 52 minus 5.6 weeks) and dividing that by the holiday entitlement of 5.6 weeks.
But the Court of Appeal has said there is no reason to pro-rata entitlement in this way as the WTR states that holiday pay should be calculated in accordance with the week's pay provisions of the Employment Rights Act 1996.
Where a worker does not have normal working hours, this is taken to be the worker's average weekly pay in the twelve weeks before the leave starts, excluding any weeks in which no remuneration was payable.
Holiday pay is a real minefield for employers, but this ruling is clear on the treatment of part-year contracts. It means that any employers who engage workers on a permanent basis for part of the year, which may include zero hours arrangements, should check their approach to holiday pay calculations so they get it right going forward.
And as workers may be able to claim for unlawful deductions going back up to two years, it needs a retrospective check as well.