Calculating holiday pay for part-year workers: are you doing it right?

Oct 6, 2022 | Information

Perhaps one of the most litigated employment law topics of the last few years has been the issue of holidays, from holiday entitlement through to holiday pay. The most recent chapter on the topic of holidays comes from the Supreme Court decision in Harpur Trust v Brazel [2022] UKSC 21, where the court held that employers can no longer use the 12.07% method to calculate holiday for “part-year workers” (such as term-time only and zero-hour contracts). The Acas guidance (which is now withdrawn) said that holiday of 5.6 weeks was equivalent to 12.07% of hours worked over a year, which proved to be an easy way of calculating holiday for a worker with variable hours.

The background

The Harpur case involved a visiting music teacher who was engaged on a zero-hours contract to work variable hours during term times. Her annual leave entitlement was 5.6 weeks each year, which she took during the school holidays, and her holiday pay was calculated by reference to an average week’s pay over a 12-week period and multiplying that by 5.6. When her employer, Harpur Trust altered the way it calculated holiday pay to 12.07%, this resulted in a lower amount of holiday pay being paid to Mrs Brazel. Mrs Brazel claimed unauthorised deductions from pay, but the employment tribunal decided against her. However, she appealed and the EAT and Court of Appeal found in her favour. Harpur Trust appealed, but the Supreme Court dismissed the appeal.

The decision

The Supreme Court agreed with the Court of Appeal that the 12.07% method was incorrect and that holiday pay for part-year workers on permanent contracts should be calculated using the “calendar week method”, i.e. determine an average week’s pay over a period of 12 weeks, ignoring any weeks where no work was undertaken, and multiply the average by 5.6 weeks. It was wrong to pro-rata the leave to account for weeks not worked.

The net result is that atypical workers may get higher rates of holiday pay than full-time or part-time workers, despite not working all year round, as the amount of annual leave is not directly linked to the amount of work done and doesn’t have to be proportional to a full-time worker. The Supreme Court held that this was not contrary to the Working Time Regulations.

What the decision means in practice

Employers need to be aware that where they have an atypical workforce who are on permanent contracts but only work for part of the year and whose hours vary, the correct method of calculating their holiday pay is to use the “calendar week method”. Where term time only staff are paid a monthly salary, they will not be affected by this decision.

Methods of calculation need to be addressed immediately and policies may need to be updated to reflect this decision so as to avoid any claims of underpaid holiday pay. Employers may also need to decide upon a strategy for dealing with any historic underpayments if staff raise a complaint.

Since the Harpur case, the 12-week average period has been extended to 52 weeks and so an employer would need to take a workers’ average pay over the preceding 52 week period in order to calculate their holiday pay, ignoring any weeks where no work was carried out.

Despite the clarification provided by the Supreme Court, holiday pay will continue to be a complex area and will no doubt be the subject of further litigation until the legislation is revised to take account of the ever-increasing atypical work force.