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Holiday Pay for Part Year Workers

The Court of Appeal has handed down a decision in Brazel v The Harper Trust  that will affect employees on permanent contracts who only work part of the year, such as those who are on term time only contracts or zero-hours contracts.

It’s important to bear in mind that the decision in this case doesn’t affect part-time employees who work fixed days throughout the whole year e.g. an employee who is employed to work Monday to Wednesday each week.

If your organisation employs ‘part-year’ workers, you may need to review how you calculate holiday entitlement and pay for these employees and the relevant clauses in your contracts.

The Facts of the Case

The employee was employed by a school on a permanent zero hours contract to teach music during term time. Her working hours varied each week and she was only paid for the hours she worked. She was entitled to 5.6 weeks holiday which she was required to take during school holidays (the school holidays themselves being greater than her holiday entitlement).The employer made three equal payments in respect of holiday pay at the end of each term.

To ensure the employee didn’t receive more holiday pay than full time employees, the employer capped the amount of holiday pay she was entitled to by using a fixed formula of 12.07% to calculate it. The 12.07% figure is 5.6 weeks holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks).

The employee complained to an employment tribunal that  this was not correct and resulted in an underpayment of holiday pay. Instead, she argued that her holiday pay should be based on her average earnings over a 12-week reference period. This approach would result in her receiving a higher percentage of annual earnings than was awarded under the calculation used by her employer.

The case went to the Court of Appeal and the employee won. The Court looked at whether part-year workers could have their holiday entitlement pro-rated to reflect the number of weeks they actually work each year, and furthermore, how their holiday pay should be calculated.

It was held that:

  • The pay issue was straightforward, employees should receive their normal pay when they take holiday. For employees whose pay varies, a week’s pay is taken to be the employee’s average weekly pay in the 12 weeks before the first day of the leave, excluding any weeks in which no remuneration was payable.
  • Employers can’t pro-rate holiday for part-year workers. Whilst European Court of Justice case law did appear to establish that employees should only accrue holiday entitlement in proportion to the time that they work, this approach was not mandatory and as member states are able to provide more favourable entitlements, there was no requirement to pro-rate the entitlement of part-year workers to that of full-year workers. Whilst the judge acknowledged that it may at first sight seem surprising that the holiday pay to which part-year workers are entitled represents a higher proportion of annual earnings than in the case of full-year workers, he did not feel that this was obviously unfair or unjust, even though there may be cases where it will produce odd results. The judge did not think it was inequitable that employers who chose to retain employees on part-year contracts because this had particular advantages for them should not have to accept the additional costs that came with that choice.

Advice

If you employ part-year workers and are affected by the decision in this case, you should contact your Employment Law Specialist to discuss your situation.