There has been much media coverage about the recent Court of Appeal judgment in Brazel v The Harpur Trust suggesting that ‘part-year workers’ are entitled to proportionately higher holiday pay than other workers.
In this article we explain why this should be and what it means for employers.
The Essential Issues
Who does the decision apply to?
This decision applies to workers who do not have ‘normal working hours’ and who work part-time, most specifically those for whom the court coined the term ‘part-year workers’.
How should holiday pay be calculated for those without normal working hours?
Section 224 of the Employment Rights Act 1996 sets out how holiday pay for employees with non normal working hours should be calculated. This provides that where workers do not work normal hours, a week’s pay is calculated as the average weekly remuneration over the previous 12 weeks (ignoring weeks which were not worked). This includes overtime and commission payments.
What is the holiday entitlement for part-time workers?
The Working Time Regulations give all employees and workers the right to 5.6 weeks holiday per year. The Court of Appeal in Brazel has made it clear that there should be no pro-rata reduction for part-time (including part-year) workers.
Employers often allocate holiday entitlement and calculate holiday pay based on 12.07% of the hours worked – why is that and is it right?
What is the 12.07% calculation based on? The 12.07% is calculated by dividing the number of weeks annual holiday (5.6) by the number of weeks the employee has to work in order to accrue that holiday (46.4 weeks)
Why do employers use the 12.07% calculation? The advantage of this approach is that it is simple, and it is one which Acas suggests for casual workers (but has been adopted more widely) in its guidance booklet Holidays and Holiday Pay which states (page 6):
What leave do casual workers get?
If a member of staff works on a casual basis or very irregular hours, it is often easiest to calculate holiday entitlement that accrues as hours are worked.
The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year.
The 12.07 per cent figure is 5.6 weeks’ holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks). The 5.6 weeks are excluded from the calculation as the worker would not be at work during those 5.6 weeks in order to accrue annual leave.
An example: Using this calculation, the holiday entitlement for a worker who does not have normal working hours but who has worked 36 hours (irrespective of the period over which the hours were worked) at a rate of £10 per hour would be entitled to 4.35 hours (12.07 x 36) holiday paid at £43.50.
What is the problem with the 12.07% calculation?
The problem with this approach is that it assumes that holiday and holiday pay for part timers accrues pro-rata to that of full timers and calculates holiday pay without proper reference to the calculation set out in section 224.
What did Brazel decide?
The case concerned a teacher, Ms Brazel on a zero hours contract who worked term time only and different hours each week. Her holiday pay had been calculated using the 12.07% figure and, therefore, on the basis that she worked 32 weeks of the year, she was informed that she was entitled to 3.86 weeks of annual leave paid at 12.07% of hours worked, but she argued that she was entitled to the full 5.6 weeks holiday and payment for that holiday should be calculated using section 224 (i.e. average weekly remuneration over the previous 12 weeks (ignoring weeks which were not worked).
The Court of Appeal upheld the EAT’s decision that a worker’s holiday pay must be calculated by reference to the worker’s average remuneration as per section 224 and not calculated pro rata to the proportion of the year worked. It decided that there was no requirement as a matter of EU law or domestic law to pro-rate the entitlement of part-year workers to that of full-year workers.
This was the case even where it resulted in the claimant being paid a higher rate of holiday pay than a comparable full-time worker because she was entitled to 5.6 weeks holiday. The court accepted that there might be even more extreme cases, such as where a cricket coach was continuously employed but only required to work one term, and yet would still be entitled to 5.6 weeks leave paid based on average earnings calculated in accordance with section 224.
Despite these results, the Court of Appeal was clear that the Working Time Regulations do not provide for the kind of pro-rating which underlies the application of the 12.07% formula in the case of a part-year worker. Instead, in the Court’s view ‘the exercise required to calculate pay is straightforward and should be followed’.
What is the impact of the decision?
- The decision is of direct relevance to employers who engage part year workers on continuous contracts but who are only required to work for part of the year. (In the Brazel case the court heard that there was some advantage in that practice for schools as it reduced certain requirements under the Disclosure and Barring Scheme). These staff will all be entitled to 5.6 weeks statutory holiday pay calculated in accordance with the weekly average pay in working weeks.
- The court seemed to suggest that a way around the decision would be to employ such workers on short term contracts (presumably because holiday would then would only accrue over the period they were actually employed) .
- The decision does not of course apply to any contractual leave to which employees are entitled over and above the 5.6 weeks statutory leave.
- This may not be the end of the road as the case could be appealed further to the Supreme Court.
This is an information note only, but please do not hesitate contact us on our advice line if we can assist you further.
In giving comment and advice in the article, we do not assume legal responsibility for the accuracy of any particular statement. If you have specific views which you wish to discuss, we would be pleased to assist you.