Latest developments in holiday pay saga

The case of Brazel v Harpur Trust has long brought into question how we should be calculating holiday pay for part-year workers.

In July 2022, the Supreme Court issued its ruling that employees on permanent contracts who only work for part of the year, such as seasonal workers or teachers, should receive the same statutory holiday entitlement (5.6 weeks per year) as employees who work the full year.

What is a part-year worker?

A part-year worker is an individual employed on a permanent contract, but who is only contracted to work for certain periods of the year.

This can therefore apply to those who work only during term times, as well as permanent seasonal workers and/or zero-hours workers.

The current legal position

This ruling meant that employers should not pro rata the holiday entitlement of “part-year” workers down so that it is proportionate to the amount of work they actually do.

In addition, the Supreme Court determined that the 12.07% method of calculating holiday pay for part-year workers and permanent workers with irregular working patterns was not in line with the Working Time Regulations (WTR) 1998 and should not be used.

The judgment has however proved tricky to understand and implement.

How should holidays for part-year workers currently be calculated?

For workers who fall into this category, they should be entitled to the full 5.6 weeks of annual leave a year.

Their holiday pay should be calculated by working out their average pay over the previous 52-week reference period.

If there is a week in which the worker was not paid, this would not be included in the calculation.

This may mean having to look back further to reach the full 52 weeks, but this shouldn’t exceed 104 weeks.

On reaching the average pay per week, this would then be multiplied by the 5.6 weeks’ leave entitlement to work out the holiday pay entitlement for the employee.

What is the Government now proposing?

Acknowledging the unfairness and calculation difficulties that this decision has brought, the government has announced a proposal to change the law so that holiday entitlement for part-year and irregular hours workers will be pro-rated based on the hours they actually work.

This proposal would effectively overturn the Supreme Court’s decision in the Harpur Trust case.

The government’s proposal is as follows:

1. Employers will be able to calculate a worker’s holiday entitlement as 12.07% of the hours that they have actually worked in the previous 52 weeks;
2. The 52-week reference period will be the employer’s holiday year. At the start of a new leave year, holiday entitlement for that year would be calculated based on the hours they worked in the previous leave year. This would give the worker a fixed pot of annual leave (expressed in hours) that they would then be able to draw from throughout the leave year;
3. For employees in the first year of their job, their holiday entitlement would accrue at the end of each month based on the actual hours worked in that month. This accrual-based system would only be required for the first year of employment until the 52-week entitlement reference period could be used;
4. To calculate how many hours of the holiday will be used by taking a particular day off, the employer would work out how many hours the employee worked on average in a day in the previous holiday year and reduce entitlement by this number of hours.