30 September, 2022
Harper Trust employed Ms Brazel as a visiting music teacher on a year round contract, but for term times only. Ms Brazel was only paid for the hours she taught, which could vary from week to week.
The Trust sought to calculate Ms Brazel's holiday pay by using the 'percentage method' i.e. multiplying the hours she worked by 12.07% then by her hourly rate. That sum was then paid as holiday pay.
Ms Brazel made a claim to the Employment Tribunal on the basis that she was, by using the percentage method, receiving less holiday pay than she was entitled to.
The case ultimately made its way to the Supreme Court, who unanimously agreed with Ms Brazel and confirmed that the 5.6 weeks holiday entitlement applies to both full and part-year workers and cannot be pro-rated based on hours worked.
Fundamentally, this decision means that anyone on a year-round contract is entitled to 5.6 weeks of holiday pay, regardless of whether they work full-time or only part of the year e.g. invigilators. Essentially, you cannot just pro-rate holiday pay for part-year workers based on hours worked and the percentage method should no longer be used. For calculations, please see the next question.
This also means that those working part of the year may end up benefitting more overall from holiday pay when compared to those working full time. It is important to be aware that full-time members of staff may feel disgruntled by this, and this is understandable, however ultimately you are now bound by law to implement these changes. The decision primarily aims to ensure that those working for part of the year are not unfairly disadvantaged.
NOTE: Part-time workers are not necessarily part-year workers. For example, if you have a member of staff on a permanent contract that works 3 days every week, all year, they are part-time and their 5.6 weeks of holiday pay can be pro-rated in accordance with the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000.
Following the decision, holiday pay for part-year workers is now calculated by reference to the hours worked over a 52-week average. This is the 'calendar method'.
The starting point is to work out their average weekly hours using the 52 weeks prior to the date you make the calculation, however you should discount any weeks not worked and can go back to a total of 104 weeks if necessary.
For example, if the person in question has worked 39 weeks of the last 52 weeks, you can go back (up to 104 weeks - 2 years) to accumulate the 52-week average by including 13 weeks from the previous year. However, if the person in question only works 12 weeks of the year, you will still only be able to go back 104 weeks and therefore use the 24 weeks available to calculate the average weekly pay.
To calculate the holiday pay, use this formula: average weekly hours (based on the above) x 5.6 weeks x hourly rate. This will be holiday pay entitlement you are bound to give that person.
George works variable hours during his working weeks, is only paid for the hours he does and is paid £10 an hour. In the last 2 years he has worked the following:
Year 1: worked 12 weeks of the year, 15 hours a week, £10 an hour.
Year 2: worked 6 weeks of the year, 30 hours a week, £10 an hour.
In the last 104 weeks, he has worked 18 weeks. He has worked an average of 20 hours per week for those 18 weeks (15 hours a week for 12 weeks, 30 hours a week for 6 weeks). 20 hours x 5.6 weeks x £10 per hour = average weekly pay of £225.
20 hours x 5.6 weeks x £10 an hour = £1,120 holiday pay, per year.
Anyone seeking to claim for lost holiday pay must bring their claim within 3 months from the last deduction. This is important to note when assessing the extent of your potential liability because if you have already corrected the pay more than 3 months ago this can limit liability and you should seek advice. This means that previous employees / workers can also bring a claim providing that they are within the time limit.
Anyone who is eligible to bring a claim can claim for back-dated holiday pay, however losses are capped at up to 2 years under the Deduction from Wages (Limitation) Regulations 2014.
Firstly, you need to understand your position in order to assess how to move forward. We recommend carrying out a full audit to 1) identify which members of staff may be classed as part-year workers and 2) review staff contracts in order to understand where you may have any potential issues. By doing so you can have a clearer picture of any potential liability.
It is also worth actually calculating your liability using the formula provided, so that you are able to assess the financial implications, remembering that losses are capped at up to 2 years.
Once you have identified the particular situations that could give rise to liability, it is important that you ensure that you have processes in place to deal with any claims that may be brought against you. Settlement agreements are also a useful tool to consider if you receive a claim or a claim is intimated, as they can be considerably more cost-effective compared to litigation.
Whilst these steps can help prepare you, it is crucial that each matter is dealt with on a case-by-case basis and consideration is given to the specific details at hand.
It is important that you recognise the impact of this decision and immediately implement the new process for calculating holiday pay for part-year workers.
Commercially, you can consider as to whether contract revisions would be appropriate. Pure fixed-term contracts could be a viable option to minimise the risk of liability, however, please be aware that a number of fixed-term contracts (4 years of fixed term) could amount to a permanent contract. There may be other ways of working that would suit your organisation and therefore we would recommend you seek legal advice on this before any changes are made.
When considering the best option for you, it is important to also consider the consequences of any decisions or changes. For example, the implementation of fixed-term contracts to avoid any issue with term-time only / part-year staff may impact upon your recruitment capabilities or retention rates.
You should also consider how this ruling may impact the value of any TUPE contracts if you are likely to inherent historic liabilities for holiday pay.
Ultimately, any decisions need to be weighed up against the potential cost, financially or otherwise. However, we understand that these changes are not easy to navigate, and if you require any further advice, guidance or support in undertaking your audit then please get in touch.
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