News & Insights

Holiday pay alert!

Jackie Denham explains an important decision for those with employees who work part of a year.

A common approach taken when calculating holiday pay for casual employees or employees with irregular hours is to pay them 12.07% of their earnings for the relevant period.  This is because the statutory annual leave entitlement of 5.6 weeks is 12.07% of a working year (52 weeks less the 5.6 weeks leave).  The approach is in line with ACAS guidance.  However Ms Brazel and UNISON challenged this approach in the case of workers who are employed on a permanent basis but only work part of the year.  The ET had decided that the relevant legislation should effectively be interpreted in a way that capped the holiday pay of such workers at 12.07% so that a worker who works part of a year does not receive a higher proportion of their annual earnings as holiday pay than a worker who worked throughout the year.  However the Court of Appeal has decided that this is incorrect.

Ms Brazel was a permanent employee employed as a music teacher with no fixed working hours effectively on a zero-hours contract.  During term-time her working hours changed depending on the number of pupils requiring her tuition – typically she taught 20-30 half-hour lessons in the relevant period – she also had some ancillary duties.  During the school holidays she gave no lessons and had no other substantial duties.  She was paid a monthly salary calculated according to the hours worked in the previous month.  She took her accrued annual leave during the school holidays and received three equal payments in respect of that leave at the end of each term.

Her employer had taken the common approach of calculating these payments as 12.07% of her earnings in the relevant term.  Ms Brazel argued that they should instead base the calculation on the approach taken in the Employment Rights Act 1996 (ERA) in relation to workers without normal working hours.  The Court of Appeal confirmed that the Working Time Regulations 1998 make no provision for pro-rating and it is not necessary to try to interpret it in a way to try to incorporate the pro rata principle.  On that basis permanent workers who work part of a year should simply be paid in respect of their annual leave by applying the provisions in the ERA to calculate a week’s pay.  This would involve calculating their holiday pay based on the individual’s average earnings in the 12-week period actually worked prior to the relevant period of leave.

This decision will be of particular interest to any of our clients who employ individuals to work irregular hours during part of the year, such as term-time only or seasonal workers, or those on zero-hours or annualised hours contracts.  If you would like any advice on how you may need to revise your practices and/or deal with any requests for underpaid holiday in light of this case, please do not hesitate to get in touch.