In a recent case the Court of Appeal has ruled that holiday pay for part-year workers who do not work under set hours should not be calculated on a pro-rata basis. The court in The Harper Trust v Brazel ruled that holiday pay for these individuals should be calculated on the basis of their average earnings over the 12-week period prior to taking leave, in accordance with the week’s pay provisions under the Working Time Regulations 1998 (WTR).
Where an employee only works for part of the year and does not work under contractually set hours, employers have tended to work out their holiday pay using a pro-rata calculation of annual pay. This judgement will affect those working in the education sector, where it is common for employees to work on this basis. The court’s judgement is likely to increase holiday payments for these circumstances and may also result in claims for unlawful deductions where employers have made pro-rata calculations in the past.
The case was brought by a music teacher who worked during term time at a school under a permanent contract. She was only paid for the hours that she worked, which varied each term, depending on the number of children attending music tuition.
Like most teachers, she was entitled to 5.6 weeks of holiday which had to be taken out of term time. Her holiday pay was calculated by taking the number of hours she worked each term and multiplying this by 12.07%. This percentage is commonly used by employers to determine holiday pay for employees working on this basis. The percentage is calculated by taking the 5.6 weeks holiday entitlement away from the total number of weeks worked in a full-time, all year position, which is 52 weeks. This results in 46.4 weeks which are worked actually within the year. The 46.4 weeks is then divided by 5.6 weeks to give the percentage.
The Court of Appeal has rejected this method of calculation as they consider that the WTR provides that holiday pay should be calculated in accordance with the week’s pay provisions in the Employment Rights Act 1996 instead. This provides that where an employee does not have contractually set working hours, their pay is calculated by taking their average weekly pay in the twelve weeks before their leave starts and excluding any weeks where they did not receive renumeration.
“Holiday pay is a real minefield for employers, but this ruling is clear on the treatment of part-year contracts,” said employment law expert Jo Cullen of Howell Jones solicitors. “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.”