Calculating holiday pay

A recent Supreme Court ruling decreed that holiday pay for part-year workers on the payroll can’t be pro-rated. We explain what this means for organisations that employ part-year workers.

Trust v Brazel: Paid holiday for part-year workers can’t be pro-rated

The Supreme Court recently decided the case of Harpur Trust v Brazel. 

The ruling has wide-reaching implications for any organisations which engage zero-hours, term-time only or part-year workers (who are on permanent contracts but don’t work the entire year) – for example those in the education, hospitality, tourism and agricultural sectors.

The decision means that those affected may be entitled to greater annual holiday pay. The impact will be felt by any employer who employs individuals throughout the year to work variable hours and who are only paid for the hours worked, so there are periods when they receive no pay.

The decision 

The Working Time Regulations state that a full-time employee is entitled to 5.6 weeks’ paid holiday per year. The amount of payment depends on the average weekly pay. The Regulations stipulate that pay is calculated over the average earnings of the preceding 52 weeks, and any week where the employee didn’t work or earn anything, is ignored.

The Supreme Court rejected the most recent appeal, which confirms that part-year variable workers are entitled to a full 5.6 weeks’ holiday entitlement, and that this isn’t pro-rata as with part-time workers.

Employers may have been paying variable employees’ holiday by including an extra 12.07% of their pay on the hours worked. However, the Harpur Trust v Brazel case has confirmed this method is now obsolete. Employers should make sure the 52-week average method is used for all employees. The periods used in the calculations shouldn’t include furlough, weeks of ‘no pay’, sickness, statutory payments or holidays. All employees are entitled to 5.6 weeks’ statutory leave, but how this is calculated varies depending on whether the employee is a part-time worker or a part-year worker.

Part-year variable workers would usually have a permanent contract with no set days or hours.  An example of this could be a substitute teacher, available for cover when needed but only working in term-time. The contract wouldn’t end and restart with term-time but would remain continuous. These employees have a full 5.6-week entitlement based on their last 52 weeks worked average.

In contrast, part-time workers would usually be contracted to set days or hours in a week and work this pattern every week. These employees are entitled to 5.6 weeks’ holiday pay based on their usual working week. Therefore, if the part-time worker usually works 3 days a week, they’re entitled to 5.6 x 3 days totalling 16.8 days, which can be paid as 16.8 days or rounded up to 17 days (but not rounded down).

Employers, who don’t pay accurate holiday pay in accordance with an employee’s entitlement, risk employment tribunals.

What should organisations do?

Engage with your legal, payroll and/or HR advisors.

All employers should review their contracts of employment and holiday policies to make sure they comply with the law and the Supreme Court judgment.

Review your employees to understand who might be affected. Look at the difference between what they are currently being paid for holiday pay and what they should be paid following the Supreme Court’s decision. At some stage, you’ll need to consider past records. 

Need help?

If you have any concerns regarding the information discussed in this article, or have any other questions, please get in touch with your usual Larking Gowen contact or look for contact details in the Our People section of the our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk.

Dannielle Chapman