Up to 700,000 workers may benefit from an increased holiday entitlement following the Harpur Trust v Brazel Supreme Court judgment. James Cresswell looks at how holiday entitlement for atypical workers should be calculated in light of this judgment.
The current law
The judgment was handed down in July 2022 and affects the holiday entitlement of workers engaged on permanent contracts but only engaged for part of the year (such as term-time or zero-hour workers). The judgment put the final nail in the coffin of employers calculating holiday pay using the “percentage method” of adding 12.07% to earnings. Instead, employers would have to pay all part-year workers at least 5.6 weeks’ holiday pay and would not pay this sum pro-rated, irrespective of the time spent working. This has affected a range of workers, most notably those in the education sector, who make up around 37% of the term-time and zero-hour workers impacted by the Supreme Court’s decision.
The issues
This judgment resulted in two key issues. Firstly, while it has been suggested that the new law will not amount to a significant change in holiday pay for the vast majority of workers, it has the potential to cause highly anomalous results. For example, a sports coach or invigilator engaged by a school on a permanent contract but only required to work for 1-2 weeks each year, would receive holiday pay vastly greater than their wages, and equal to their full-time colleagues. This factor was considered by the Supreme Court, whose focus was on ensuring all workers receive at least the minimum entitlement, with less concern to those who benefited disproportionately.
Bank holiday working
Secondly, although the holiday pay calculation set out by the Supreme Court was simple enough (average weekly pay from the previous 52 weeks, excluding weeks not worked, multiplied by 5.6 weeks), the practical implementation of this has been causing headaches for employers across the country. Although government guidance suggests calculating the average hours worked in a “representative reference period”, significant uncertainty remains when calculating holiday pay of new starters and those with highly irregular hours. The calculation also results in unfairness for those with different working patterns; a part-year employee working 30 hours every other week would earn twice as much holiday pay as a similar employee working 15 hours every week, despite the fact they work the same total hours.
The consultation
With the above issues in mind, the government is concerned that the Working Time Regulations 1998 are not achieving their original intention. The regulations, responsible for governing holiday entitlement among other employment rights, were the basis of the Supreme Court’s decision in Harpur Trust v Brazel. The government is therefore keen to resolve the current issues while ensuring it does not have an adverse effect on other parts of legislation.
The purpose of the consultation is to therefore make sure that workers receive holiday pay that reflects the hours they have actually worked. In addition to addressing this disparity, it is hoped that new legislation will provide clarity to workers and employers by providing a clearly defined method in calculating holiday entitlement.
As part of the consultation, the government has already set out its proposed method of amending the law. It has been suggested that weeks not worked are included when calculating the 52-week reference period, rather than excluding them as per the Harpur Trust calculation. The total hours worked will then be multiplied by 12.07% to calculate the total holiday entitlement.
The government are welcoming views from both individuals and organisations, with all responses required by 9 March 2023. The government’s response will subsequently be published “in due course”.
The next steps
As it stands, the Harpur Trust v Brazel judgment remains binding law and a failure to pay holiday pay accordingly may result in successful claims for unlawful deduction of wages. Although employers who have not yet introduced the new calculation may decide to hold out until the findings of the consultation are legislated for, they remain very much at risk of tribunal claims. In contrast, employers who amended contracts of employment to be “Harpur Trust compliant” will soon find themselves in the difficult position of hoping to renegotiate those contracts.
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With up to 700,000 workers benefiting from an increased holiday entitlement following the judgment, some solace for employers will be the speed at which the government seemingly intends to rectify the current confusion. Despite the Code of Practice on Consultation advising consultations remain open for at least 12 weeks, this consultation open for just eight weeks, suggesting an urgent change to the law may follow the consultation period.
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