Last week, the Supreme Court confirmed that part-year workers must receive 5.6 weeks’ statutory holiday pay in the case of Harpur Trust v Brazel. How does this impact how HR calculates holiday pay for employees? Jo Moseley explains.
The Supreme Court handed down its judgment last week in the long-running case of Harpur Trust v Brazel.
It decided that any worker who has a continuing contract throughout the year, but only works for certain periods during that year (such as term-time workers), must have their holiday pay calculated in the same way as colleagues who work the full year, rather than pro-rated.
Which workers are affected by this decision?
The decision will affect those workers who work for part of the year under permanent or continuous contracts. This will include term-time only workers, seasonal workers, those on zero hour contracts, bank staff, and workers engaged under umbrella contracts.
It will therefore impact many employers across a range of sectors including schools and colleges, care homes and the NHS, recruiters that use an employment model for temporary workers, and manufacturers who rely on permanent zero hours workers.
How much paid holiday are part-year workers entitled to take?
Part-year workers must receive at least 5.6 weeks of holiday each year, even if they only work for a few weeks per year. This can lead to extreme situations, as illustrated by this example when the Harpur case reached the Court of Appeal.
It cited the example of a school cricket coach, who would only work for one term, or invigilators, who worked only during the exam season.
“In principle you could have a permanent employee who worked only one week of the year, for which he or she earned, say, £1,000, and who would then be entitled to 5.6 weeks (notional) annual leave, for which they would receive £5,600,” the judgment said.
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Does an employer have to pay holiday pay to its casual workers?
The Supreme Court accepted that this put part-year workers in a more favourable position than full-time workers but said that this outcome was not so absurd to justify revising the statutory scheme.
Does this mean part-time and part-year workers must receive at least 28 days’ paid holiday?
No. All workers are entitled to 5.6 weeks’ holiday each year. You can’t pro-rate the number of weeks leave they receive, but this doesn’t mean that everyone will get 28 days’ leave (the number of working days in 5.6 weeks for someone working full-time).
What is the impact on part-time workers?
A part-time worker will work less than the full-time equivalent (FTE) hours in a week. Therefore, the number of days’ leave a part-time worker receives will depend on the number of days (or hours) they work each week, calculated as 5.6 of their regular working weeks.
For example, if they work one day a week (0.2 of FTE), they are entitled to 5.6 days’ holiday; if they work 2.5 days a week (0.5 FTE) they will get 14 days’ holiday.
In this way, they still get 5.6 weeks’ holiday based on their contracted hours of work.
How do we calculate part-year workers’ entitlement?
Part-year workers will only be entitled to 28 days’ holiday if, when they are working, they work five days a week.
To work out how many days’ holiday a part-year worker who also works part-time is entitled to receive, you need to go through the same process as you would for anyone working part-time throughout the year.
For example, a term-time worker who works three days a week (0.6 FTE) will be entitled to 16.8 days’ holiday each year as this amounts to 5.6 weeks’ holiday based on their usual working weeks.
Similarly, part-year workers who work for a specified number of hours per week (rather than on fixed days) are entitled to 5.6 weeks’ leave based on those hours worked.
What about part-year workers whose hours change?
They are, of course, entitled to 5.6 weeks’ holiday. But what does this mean in terms of hours or days? Unfortunately, the Supreme Court hasn’t removed all legal uncertainties and issues like this will continue to cause difficulties.
Government guidance recommends that workers who don’t have a regular working pattern or guaranteed hours should have their leave entitlement expressed in weeks.
However, we do know what 5.6 weeks’ holiday means in terms of pay for these types of workers.
The Supreme Court made it very clear that employers cannot work out their pay by multiplying the number of hours they have worked per week by 12.07% – the figure relating to the proportion statutory leave bears to the working year.
Instead, they have to work out their weekly pay by averaging their pay over the previous 52 weeks, ignoring any weeks where they are on holiday, not working, or on unpaid leave.
If you provide additional holiday, on either a contractual or discretionary basis, you can pro-rate this element to reflect the number of weeks the worker actually works per year.
That amount will be their “week’s pay” and if they take a week’s holiday, that’s the amount you must pay them. If they take less than a week’s holiday, you will have to work this out as a percentage of a week, and calculate the pay accordingly.
Are there any circumstances where we can apply the pro-rata principle to part-year workers?
Yes, but these are limited.
The Working Time Regulations allow employers to pro-rate holiday in the first and final years (Regulations 13(5) and 14(2)) to reflect the amount of time a worker has been employed in the relevant leave year. Leave is deemed to accrue at a rate of 1/12th per month.
Any worker who hasn’t taken their pro-rated holiday entitlement by the end of their employment must receive a payment in lieu to compensate them. Unless you have a written agreement which sets out how you intend to calculate this, you must follow the mathematical formula set out in the Regulations.
If a worker has taken more holiday than they are entitled to, you will only be able to recover this (for example, by making a deduction from their final salary) if you have a clearly worded contractual right to do so.
The only other pro-rata adjustments for those working part-time or irregular hours are those which result from the complicated rules on a “week’s pay” set out in sections 221-224 of the Employment Rights Act 1996. However, these apply to pay rather than the entitlement.
Can employers pro-rate additional leave?
This decision only relates to 5.6 weeks paid holiday required under the Working Time Regulations 1998. Therefore, if you provide additional holiday, on either a contractual or discretionary basis, you can pro-rate this element to reflect the number of weeks the worker actually works per year.
Can we ‘cap’ holiday at 5.6 weeks for part-year workers?
Yes, provided comparable full-time members of staff only receive 5.6 weeks paid holiday.
If you give full-time members of staff additional holiday, you must ensure your part-year workers receive the same entitlement, although as indicated above you can pro-rate any leave in excess of the 5.6 weeks to reflect the number of weeks they actually work per year.
If you cap holiday at 5.6 weeks for part-year and/or part-time workers in circumstances where you provide additional leave to comparable full-time members of staff, you may breach the Part time Workers (Prevention of Less Favourable Treatment) Regulations 2000.
We therefore recommend that you take legal advice if you are planning to cap the pay of part-time and/or part-year workers.
This means we’ve underpaid term-time staff. Can they claim back pay?
That depends on when they started working for you, how their contract is worded and whether they are still employed.
As the law currently stands, it may be possible to limit your historical holiday pay claims to the current holiday year using complex legal arguments about whether the underpayments form a series of unlawful deductions. We recommend that you take legal advice as soon as possible to see if you can limit your historical liabilities in this way.
The Deduction from Wages (Limitation) Regulations 2014 also limits how far back an employee can go when claiming a series of deductions to two years from the date the claim is presented (there are some exceptions to this).
It’s worth noting that the Court of Appeal of Northern Ireland has ruled that unlawful deduction claims can go back many years.
That decision is not binding in the rest of the UK but, the Court of Appeal in England and Wales, in another holiday pay case, expressed a “strong personal view” that the Northern Ireland court’s decision was correct.
Do we need to change the terms and conditions of any part-year staff?
Within a month from the date you impose the change, you should provide all affected staff with a written statement setting out their new holiday entitlement.
Before you change their contracts, we recommend that you consider the best way to communicate this.
While any part-year worker who hasn’t been correctly paid is likely to welcome what is, in effect, a pay rise, they may ask for compensation to reflect all years they have been underpaid.
You may also need to manage the expectations of full-time and other part-time staff who may feel aggrieved that staff working fewer weeks a year than they are, are being paid at a higher rate of their annual salary when they go on holiday.
Is there any way around this decision?
The only way to avoid the impact of this decision is to engage your part-year staff on individual temporary contracts which only cover the time they are actually working. These must be genuine though and properly reflect the employment relationship between you and your workers.
The downside of this approach is that when you need staff again, you’ll have to go through a recruitment process. You may, therefore, find it difficult to recruit skilled workers when you need them.
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If you opt to retain part-year workers on continuous contracts, you are able to determine when they take holiday by serving written notice. You can, therefore, continue to restrict holidays to particular times of the year, which may minimise the disruption of increased holiday absence.
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