Most workers have a right to a minimum of 5.6 weeks’ paid annual leave, as stipulated in the Working Time Regulations 1998. But how do you work out what to pay your staff who work irregular hours throughout the year?
Often, employers decide that a worker accrues holiday entitlement at the rate of 12.07% of hours worked – a rate derived from the fact that the standard working year is 46.4 weeks (52 weeks less the statutory 5.6 weeks’ holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks.
However, as a recent court ruling found, employers should instead base holiday pay on an average of the last 12 weeks worked, as set down in sections 221 to 224 of the Employment Rights Act 1996 (ERA 1996).
The Employment Appeal Tribunal (EAT) in Brazel v The Harpur Trust confirmed that the established practice of paying 12.07% of annualised hours is not correct – and that holiday pay may need to be calculated differently.
Mrs Brazel was a visiting music teacher who worked at a school run by the Harpur Trust. She was employed under a zero hours contract and worked mainly during school term-time, which constituted between 32 and 35 weeks. She was entitled to 5.6 weeks’ paid annual leave, which she was required to take during school holidays.
Harpur calculated Mrs Brazel’s holiday pay at a rate of 12.07% of hours worked in a term. However, Mrs Brazel asserted that it should be calculated under the provisions in section 224 of the ERA 1996, namely her average earnings over a 12-week period immediately before holiday was taken.
That approach would result in her, as a term-time only employee, receiving a higher percentage of annual earnings as holiday pay. If she worked 32 weeks of the year, it would equate to 17.5% of annual earnings.
The trust argued that holiday pay should be pro-rated for an employee working fewer weeks than the standard working year so that it was based on the number of weeks actually worked. It contended that to do otherwise unfairly rewarded part-time workers.
The tribunal agreed with the trust – but Mrs Brazel took her case to the Employment Appeal Tribunal (EAT), which reversed the original decision and agreed with her claim.
The EAT found there was no requirement to carry out an exercise in pro-rating for part-time employees so as to ensure that full-time employees were not treated less favourably.
The EAT agreed that the stipulations of the ERA meant that her working hours over the previous 12-week period should be used to calculate her holiday pay.
What does it mean for employers?
Adopting the approach of simply paying 12.07% annualised hours as holiday or increasing hourly rates by 12.07% to include an element for holiday pay may leave you vulnerable to claims for unlawful deductions from wages.
The correct approach for employees who do not have regular hours of work is to work out the average pay in the 12 week period prior to the holiday being taken.
If you employ staff who have unusual working hours and who do not work the full year, you should assess the holiday pay policies within your organisation.
How can our Employment Law lawyers help?
Our expert employment lawyers can work with your organisation to ensure you aren’t vulnerable to Employment Tribunal claims.