The Supreme Court has now issued its long-anticipated decision in the case of The Harpur Trust v Brazel. The Court has held that a music teacher who only worked for part of the year, albeit on a year-round contract, was entitled to the same paid holiday as employees working all year, unanimously dismissing an appeal.
The case focused on whether a worker’s right to paid annual leave is accumulated according to their working pattern, and if it should be pro-rated if they do not work for the full year.
For a full background on the case please see our previous article Tribunal Tale – Brazel v Harpur Trust
What were the issues in this case?
The decision highlighted in this case relates to how employers calculate holiday pay rather than holiday entitlement for those who work variable hours such as casual workers. All workers have long had an entitlement to 5.6 weeks’ statutory leave or a pro rata amount based on that equivalent full-time amount.
A common method of calculating leave entitlement and pay for irregular/variable hours/casual workers was to base that calculation on the 12.07% formula. In this case, it was held that a visiting music teacher’s holiday pay (which was paid three times yearly in the school holidays) could not be limited to 12.07% of pay, but had to be calculated at the end of each term based on average earnings over the last 12 remunerated weeks as required by the Working Time Regulations (WTR) 1998 and the Employment Rights Act (ERA) 1996 at the time (the reference period is now 52 weeks rather than 12 weeks). This resulted in holiday pay equal to 17.5% of the pay for her working hours which meant that she was receiving more holiday pay (not entitlement) than employees who worked for the full year.
What does this mean in practice?
Holiday entitlement and holiday pay are two separate points. It is still acceptable for employers to continue to use the 12.07% formula to work out an employee’s holiday entitlement. However, this case has made it clear that this formula should not be used when working out holiday pay. Employers should ensure that when calculating holiday pay for those working variable hours, the pay is based on their average earnings over the last 52 weeks.
Another important point is that employers should only include weeks in which the employee actually worked when calculating the average pay. This means that, in a term time situation (for example), if the employee worked in only 12 of the previous 52 weeks, the employer will have to look back even further when calculating the average, as any weeks in which no work took place should be discounted. This also includes discounting any period where an employee was on furlough leave.
What action should employers take?
If you employ someone who works varied hours/casual workers or part-year workers then we would recommend you take legal advice due to the potential risks of backdated claims relating to holiday pay as this may have serious financial implications for your organisation.
If you have any questions on any of the issues mentioned in the above article, please contact Kelly McManus.