The recent ruling from the Supreme Court has caused a stir recently and generated quite a lot of confusion amongst employers who engage term-time or other part-year workers. Calculating holiday entitlement for atypical workers can be complicated at the best of times, so below should help to provide clarity on what employers should do in terms of calculating variable holiday entitlements.
Legal background
Under the Working Time Regulations 1998 (WTR), workers are entitled to a minimum of 5.6 weeks’ annual leave per year. There are express provisions that allow an employer to pro-rate this entitlement in the following circumstances:
- In the worker’s first and final holiday year, on account of the fact the worker has worked an incomplete year; and
- If the worker works part-time (in which case the worker will be entitled to fewer days’ annual leave, but this should still equate to at least 5.6 of their shorter part-time weeks).
The Working Time Regulations does not make specific provision to pro-rate the leave entitlement of a worker who was contracted year-round, but who is only required to work for part of each year.
Factual background of the case
Ms Brazel was a music teacher, engaged by the Harpur Trust, on a term-time only basis. Her holiday was based on hours actually worked, so assuming she worked 39 weeks a year, would have been 4.7 weeks’ pay. She brought a claim against her employer saying that her holiday should not be pro-rated to reflect the fact that she doesn’t work the full year, and instead she should receive 5.6 weeks’ holiday. Initially, she lost her tribunal claim, but the Employment Appeal Tribunal, the Court of Appeal, and finally the Supreme Court all agreed with her, with the Supreme Court’s final ruling handed down a couple of months ago.
The judgment concluded, summing up the findings, as follows.
“In short, the amount of leave to which a part-year worker under a permanent contract is entitled is not required by EU law to be, and under domestic law is not, prorated to that of a full-time worker.”
Why did Ms Brazel win?
Ultimately, whilst the Working Time Regulations 1998 do make provision for pro-rating holiday for those who work less than a full week, there is no provision for giving any worker less than 5.6 weeks’ holiday a year. The only circumstances under which this can be reduced are where someone starts or ends their employment without completing a full holiday year.
How were employers calculating holiday before
Previously, those employers with term-time staff were reducing the 5.6 weeks entitlement so that it was proportionate to the number of weeks a year their staff members were working. So, if someone working all year round got 5.6 weeks, someone only working 39 weeks would get less. This reflected the ACAS guidance and was almost a universal practice.
What does this mean in practice?
1. Does it change anything for other part-timers?
No. For those who work, for example, three days a week all year round, they would still get less holiday than their full-time colleagues. They would get 5.6 x 3 = 16.8 days, which you’d round up to 17. The easiest thing to do is remember the 5.6 weeks. However, as many hours or days your employees work, they get 5.6 weeks of that as annual leave.
2) Which workers are covered by this?
The decision affects workers who are engaged on permanent ‘year-round’ contracts, but who are only required to work for part of the year. Most commonly, this will include:
- Term-time-only workers (e.g., teachers)
- Permanent seasonal workers (e.g., exam invigilators, football stewards); and
- Workers on permanent zero-hour contracts (i.e., those who do not sign a new contract each time they are offered a work assignment).
Companies operating within retail and hospitality who employ directly, or through agency or umbrella companies, part-year/seasonal workers such as front-of-house staff, warehouse staff, store assistants, etc., on an overarching/permanent contract of employment, should be aware of the implication the Supreme Court decision will have.
What about holiday for zero hours workers?
This ruling may well affect zero-hours workers. If you have people on zero-hours contracts who are employed continuously for the whole year, but do not work every week, they will get 5.6 weeks of their normal pay (calculated using the average method above) as holiday.
Previously, many employers were using a percentage of hours worked method, so calculating 12.07% of hours worked, and that was how much holiday the person had. Whilst it’s technically not correct if the worker does work every week, that does come out the same as 5.6 weeks of average pay. But if your zero-hours worker doesn’t work each week, using a percentage calculation like that will not be correct, and you shouldn’t do it.
Note for employers
This case is very important and is one that provides clarity for organisations when calculating holiday pay for atypical workers. The key takeaway from this judgement is that all workers (note, this includes employees) should be getting 5.6 weeks’ leave, regardless of the number of weeks in the year they actually work, if their contract is ongoing, and that their holiday pay should be based on an average over 52 weeks in which they have performed work.
I would advise employers to ensure that they keep accurate records, to be able to calculate this average. It is especially important to note that only weeks in which work is performed should be included, and therefore weeks where no work is provided, but the contract continues, should not be included. This may mean going further back than one year (to a maximum of 104 weeks).
Moving forwards, employers may be better to:
- Re-think whether permanent contracts are appropriate where work is only undertaken during part of the year;
- Conduct an internal audit to understand the extent to which holiday pay may have been underpaid and whether the shortfall should be paid out; and
- Consider what calculation method should be used going forward
If you would like any help calculating holiday for your term time, zero-hour, or other part-year workers, please get in touch with HPC by emailing contact@highperformanceconsultancy.com