All workers are entitled to 5.6 weeks of paid holiday each year, and a recent case at the Supreme Court has clarified how this should be calculated for people who do not work every week of the year or those who have zero hours contracts.
Fundamentally, the Supreme Court ruled that holiday pay for workers who only work certain weeks of the year, should be calculated based on their earnings during the weeks they worked, and excluding weeks they did not. This means the standard pro-rata formula or the ‘conformity principle’ of 12.07% that has been commonly used is no longer a lawful calculation for part-year workers’ holiday pay.
The case which led to this ruling concerned a part-time music teacher, but the decision will apply to zero hour workers and employees who have continuing contracts but who work only certain weeks of the year, for example school terms or seasonal workers.
It’s important that employers of part-year workers who do not work every week of the year, including continuing seasonal workers and zero hours workers, review their holiday pay arrangements promptly to ensure compliance.
In July 2022, the Supreme Court upheld a Court of Appeal decision, which ruled in favour of Lesley Brazel, a part-time visiting music teacher employed by Harpur Trust in Bedford.
Brazel is a saxophone and clarinet teacher, and works varied hours each week during term-time. She took her case to an employment tribunal following a change to her pay.
Her holiday pay had previously been calculated based on what she earned in an average week, multiplied by 5.6, which is the statutory minimum number of weeks leave in the UK.
However, from 2011, the academies trust changed its method of calculation, based on guidance from the Advisory, Conciliation and Arbitration Service (ACAS). This led them to take the total number of hours worked each term, calculated 12.07% of that figure and paid the subsequent number of hours holiday pay based on this figure.
After her case was initially dismissed, Brazel successfully appealed the decision, and the tribunal ruled that holiday pay should revert back to being based on a normal working week. This is the decision that the Supreme Court has upheld. As a result, ACAS has changed its guidance.
The entitlement to 5.6 weeks of paid annual leave was set out by The Working Time Regulations 1998, with a ‘week’s pay’ defined by The Employment Rights Act 1996 as a worker’s average weekly remuneration in the period of 52 weeks, ending on the last day of a week on which the calculation is made.
This act also states that weeks where no payment has been made to a worker should be discounted from the calculation of a ‘week’s pay’.
As the recent ruling has clarified, holiday pay for part-year workers will need to be based on their average weekly pay over the last 52 weeks, excluding any weeks they did not work. Remuneration of earlier weeks should be taken into account to bring the total up to 52 weeks, and if a worker hasn’t been with a company for a full year, then an average of the weeks worked should be used.
In many instances, this could mean more generous holiday pay for part-year workers.
Employers who engage workers on zero hours contracts or workers who don’t work every week should now check holiday pay calculations and written contracts to ensure they remain compliant with the law.
Contracts should be written to reflect the above, and any reference to the 12.07% pro rata holiday calculation or the so-called ‘conformity principle’ should be removed to reflect the new method for calculating holiday pay.
There is also the potential for employees or former employees to make claims for backdated holiday pay if holiday pay has been calculated using the old method, so it would be wise to amend contracts and pay calculations quickly to reduce the chance of further claims being made. There is a three month time limit for such claims so these would likely be limited to current employees, or those who have recently left.
If you need help to analyse the impact that the ruling will have on your organisation, please get in touch with your dedicated adviser or contact our team.