Calculating Holiday Pay | New Holiday Pay Ruling 2019

Since 2014 there has been a growing number of cases that have looked into what employers should pay when an employee in on annual leave. It started with employers having to pay commission whilst annual leave was taken. Then it moved onto overtime, stating that regular and consistent overtime should be paid whilst employees take annual leave. Just when you thought you knew where you stood when calculating holiday pay, another tribunal case comes out that moves the goal posts for employers once again.

The Harpur Trust v Brazel [2019]

The details of the case are that Mrs Brazel was a visiting music teacher employed on a 0 hours contract, typically working 32 weeks a year (although this varied) over 3 school terms. Both, her annual leave allowance and payment were calculated using the 12.07% as advised by ACAS. Mrs Brazel submitted an employment tribunal claim, asserting that the 12.07% approach bears no relation to the calculation required by the Working Time Regulations (WTR) 1998. She stated that her holidays should be paid as an average of the previous 12 weeks. The tribunal dismissed Mrs Brazel’s claims. It found that there had been no unlawful deduction of wages as a result of the application of the 12.07% calculation. It held that a principle of pro rating for employees who do not work all 52 weeks of the year should apply.She appealed to the Employment Appeal Tribunal (EAT) in relation to the correct calculation of holiday pay only. The EAT upheld the appeal, finding that the tribunal had erred in capping her holiday pay at 12.07% of annual earnings. The EAT held that there was no requirement under the WTR to pro rate holiday pay for employees that don’t work all year round. Finally, Harpur appealed to the Court of Appeal on the principle that it was necessary to reduce Mrs Brazel’s holiday entitlement to reflect the fact that she worked for only part of the year in order to avoid being put at an advantage over full time staff. The Court of Appeal dismissed the appeal. There is no provision within the WTR to pro rata the 5.6 weeks annual leave entitlement for a ‘part-year’ worker. Therefore, whilst the contract is live, even if the worker is not working, they still accrue holidays. Regarding the oblivious injustice that part time staff will be at an advantage over full time staff, the Court of Appeal agreed with the EAT to say that there was nothing to protect employers from this happening.

What Does this Mean for Employers?

• All workers that are engaged with an employer all year round (i.e. part year employees with permanent contracts) are entitled to 5.6 weeks annual leave, even if they do not work all year round. This includes zero hour and term time only employees.
• Workers on temporary assignments still only accrue annual leave for the duration of the contract.
• Employees will be able to claim 2 years’ worth of wages if a claim is brought. Please note, this 2 year limit does not apply in Northern Ireland where claims of this nature can go back further.
• Calculating holiday pay should not be done using the 12.07% method, but now it should be calculated using the 12 week average method. Please note this only applies to the pay not the allowance.
Whilst this case is at the Court of Appeal, it could still be challenged. This puts employers in a tricky position. At the moment, if you have any staff that have pro-rated holidays based on the amount of weeks in the year they work (most commonly term time staff), they would be able to bring a claim in line with this decision. You can change how you calculate holiday pay based on the judgement of this recent case, however if you do so you are entering into a contractual obligation that would be difficult to overturn if the decision is appealed by The Harpur Trust later down the line. For business-specific queries about calculating holiday pay or any other HR issues request a callback for access to FREE no-strings HR advice. Request a callback today »