Yet Another Holiday Pay Decision (UK)
This time concerning how holiday pay should be calculated for those who only work for part of the year, e.g. term-time workers, and arguably proof positive of the old legal maxim that “hard cases make bad law”.
The Court of Appeal in The Harper Trust v Brazel has said that employers should not use the ordinary rolled-up premium of 12.07% of annual pay to calculate holiday pay for workers who only work for part of the year and who do not have normal working hours. Such workers are instead entitled to have their statutory holiday pay entitlement calculated in accordance with the “week’s pay” provisions set out in the Working Time Regulations 1998, i.e. based on their average earnings over the 12-week period prior to taking leave. In practice, this will normally mean higher holiday pay payments are due.
Ms Brazel is a part-time music teacher at Bedford Girls School. She was described by the Court of Appeal as a ‘part year’ worker because she only worked term-time (between 32 and 35 weeks each year). She is employed on a permanent contract of employment, but the School is not obliged to provide her with any fixed number of hours and only pays for hours worked. Her hours of work vary from term to term, depending on how many children have been told by their parents that they want music lessons.
Under the terms of her contract, Ms Brazel is entitled to 5.6 weeks’ holiday in accordance with her statutory entitlement under the WTR. She is required to take that holiday during the school breaks and is then paid a sum in respect of holiday pay at the end of each term. The School calculated her holiday pay by multiplying her pay for the hours she worked each term by 12.07%. This 12.07% is not set out in the WTR, but is a set percentage that many employers use to calculate holiday entitlement for those with irregular working hours. It reflects the percentage that statutory holiday entitlement bears to the remainder of the working year. 5.6 weeks’ holiday divided by 46.4 weeks (being 52 weeks minus 5.6 weeks) = 12.07%. This approach is not unusual and is in line with Acas guidance on how to calculate the holiday entitlement for casual workers.
Ms Brazel claimed that her holiday pay should have been calculated in accordance with the provisions in the WTR. For workers like her, with irregular hours, this would involve taking her average earnings over the 12-week period immediately before the holiday was taken.
That cannot be fair, said the School. Such an approach would have resulted in Ms Brazel receiving a higher proportion of her annual earnings as holiday pay (17.5% as opposed to 12.07%). It would also mean that she received roughly the same amount of holiday pay as a part-time worker who had worked 46.4 weeks per year (a full year minus holidays) as opposed to 32 weeks.
The Tribunal dismissed Ms Brazel’s claim, accepting the School’s argument that the statutory entitlement to 5.6 weeks’ holiday pay per annum should be pro-rated so that the entitlement to holiday pay was based on the number of weeks actually worked.
The EAT allowed an appeal and its decision has now been upheld by the Court of Appeal. It said there is no reason to pro-rate the entitlement of ‘part-year’ workers to that of full-year workers. It pointed out that the WTR make no provision for pro-rating in these circumstances. They simply require “the straightforward exercise” (!) of identifying a week’s pay. Attempting to build in a pro-rating requirement or an accrual system would involve the substitution of an entirely different scheme. It acknowledged that this approach could produce odd results in certain circumstances, as in this case, but said that this did not justify pro-rating the entitlement to 5.6 weeks’ pay.
This decision will be of most interest in the education sector where term-time working is commonplace. It will, however, also be of interest to other employers that engage ‘part-year’” workers (e.g. seasonal workers) and currently use the 12.07% figure to calculate holiday pay entitlement. Such employers should review the basis on which they calculate holiday pay to ensure they are compliant.
We know that some employers sometimes use the 12.07% figure to calculate holiday pay for atypical workers. It is a fair and practical solution to the tricky issue of trying to calculate holiday pay for those with irregular hours. However, it is not what the law requires. As the Court of Appeal highlighted here, the WTR contains a mechanism for calculating statutory holiday pay entitlement. To adopt a different approach means that you run the risk of claims of underpayment. As with many other holiday pay cases, the sums involved for any particular worker are not likely to be significant, but clearly these can quickly add up if you are dealing with a large number of workers, all of whom have had their holiday pay entitlement incorrectly calculated.