Julie Bann and David Leach analyse a landmark Supreme Court ruling on holiday entitlement and pay for atypical working arrangements.
The Supreme Court’s unanimous decision in Harpur Trust v Brazel  UKSC 21 that the Working Time Regulations 1998 (WTR) do not provide for pro-rating of the holiday entitlement for permanent workers who only worked for part of the year will be disappointing and costly for many organisations but has provided welcome clarity.
It has always been simple to deal with holiday for permanent employees who work 5 days a week all year and are paid a consistent salary. The WTR are also very clear on pro rating the 5.6 weeks leave for part- time workers who work over 52 weeks. Most guides (including ACAS) advised that it was also appropriate to pro-rate holiday entitlement for workers who worked for only part of the year such as term time only workers, although this was not stipulated within the WTR. The fabled 12.07% to calculate holiday for atypical workers was general custom and practice. It now transpires that this means of calculating leave and pay is contrary to the WTR.
This final judgment will have substantial implications for how organisations calculate holiday pay and entitlement for staff on permanent contracts but who only work term-time or another part year work pattern.
Ms Brazel is a peripatetic music teacher at a school run by the Harpur Trust. She has a permanent contract and works a variable number of hours each week, depending on the student demand for private music lessons. She is only paid for the hours that she teaches during term time.
Under the WTR, she is entitled to a statutory minimum holiday entitlement of 5.6 weeks but as she does not work during school holidays, she receives more than the minimum holiday leave entitlement. The issue was in relation to her holiday pay, which was treated as being taken in three equal tranches (the spring, summer and winter holidays).
From September 2011, the Harpur Trust used the calculation method promoted by many guides and ACAS in calculating 12.07% of the total hours worked at the end of each term and then multiplying this by her fixed hourly rate to determine her holiday pay. (12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year for an FTE).
Ms Brazel pursued an unlawful deduction of wages claim in the Employment Tribunal arguing that the Working Time Regulations did not provide for pro rating holiday for part year workers. While she was initially unsuccessful at the ET, the EAT, Court of Appeal and now the Supreme Court found that there was no legal basis for creating this system of prorating holiday entitlement.
The Supreme Court found that the 5.6 weeks leave was the basic minimum requirement and there was no European law preventing a state from offering more generous provision. They also held that the any calculation for pro-rating leave for part year workers was not provided for in the WTR and was contrary to the holiday pay requirements.
Briefing on Implications
Employers must ensure that all workers are entitled to 5.6 weeks paid leave a year even if they do not work for the full 52 week leave year.
The 12.07% calculation is not a safe or legal method and should be avoided. The only way to calculate holiday pay is by taking an average of hours worked over the last 52 weeks of the leave year, (ignoring any weeks not worked) to calculate the weeks’ pay which is then multiplied by 5.6 weeks leave.
The Supreme Court accepted that there will be rare exceptions that will create some anomalies, but that this does not undo the clear statutory scheme. In circumstances where you have a worker contracted for a year, but only works one week that year. It also accepted that there will situations where this will be worse than the 12.07%.
The ruling has immediate and serious implications for organisations, which offer term time only employment such as schools, nurseries and other childcare facilities and any employer who has workers with atypical part-year arrangements.
If you have not already done so, organisations must immediately review their holiday pay and leave calculations for term time or part year workers. Contracts and leave policies should be updated to reflect the statutory minimum.
Organisations should also undertake an audit of the number of staff impacted by this change in calculation and assess their liability for claims for underpayment of holiday pay. Please note that unlawful deduction of wages claims has a cap of two years.
We understand that some Unions are threatening indirect discrimination claims which would remove the 2-year cap. We believe such claims can be successfully resisted.
An important distinction which must be considered, is that this judgment applies to workers who are permanently engaged to work only part of the year but this may not extend to workers who happen to start or finish work part way through the year.
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