A Supreme Court Ruling (Harper Trust v Brazel) has clarified how holidays must be calculated for part-time workers on irregular hours where there are gaps between their periods of work.
If you are using the previously recommended 12.07% calculation, you should review your approach.
What has changed for part-time holiday pay?
Entitled to full amount
The ruling clarifies that where a worker works on a permanent contract throughout the holiday year, but has irregular hours and pay, they are entitled to 5.6 weeks statutory leave. The amount of holiday due should not be pro-rated according to the number of weeks worked out of 52. They are entitled to the full amount, based on what an average week of work looks like for them (so it could be two days per week, or five, etc).
Calculated holiday pay
Holiday pay should be calculated, not on a pro-rata basis according to weeks worked, but based on a ‘week’s pay’ averaged out over the previous 52 worked weeks. If the worker does not earn anything during a week, it has to be disregarded and earlier weeks included, creating a 52-week reference period.
The effect is that part-year workers could be paid proportionally more by way of holiday pay than those who work full-time or part-time on regular weekly hours.
The decision will have financial ramifications for employers as well as causing potential inequality between full-year and part-year workers (as well as part-time workers).
Next steps for employers
Assess number of workers that are impacted
- As a first step, employers must assess the number of workers that could be impacted by this decision (those retained workers who are being employed throughout the year but with irregular or part-year working hours). For those that qualify, update their entitlement to 5.6 weeks’ of holiday per year.
Use correct calculation moving forward
- Employers should also ensure that when calculating holiday pay, they use the correct calculation moving forward and make any amendments to workers’ contracts to reflect how holiday pay will be calculated. Apply the averaging period of 52 weeks (where work has been done), going back up to 2 years in order to reach the 52 weeks, or as close to it as possible.
Consider fixed-term or a temporary contract
- This will not be easy or popular (for employers!). So consider whether fixed-term or a temporary contract (rather than permanent) might be preferable in the future – although there is administration time and costs, plus potential risks with ending a permanent contract and restarting under different terms.
Consider approach to back-pay
Consider the approach over liability for back-pay. Employees are able to claim unpaid holiday over the previous two years. The judgement did not impose a requirement for employers to pay back-pay, but this is a strategic decision whether to open up a dialogue with employees now and settle any liability.
For further discussion and practical advice into this change, watch our information session with GBH Law: