The Supreme Court decision in the case of Harpur Trust v Brazel (July 2022) clarifies the law on calculation of holiday entitlement and pay for workers who do not work the same number of hours per week, every week of the year.  This includes term-time only workers, those on permanent variable hours or annualised contracts, and casual workers.  It does not affect part-time workers who work each week for a full year, nor those not contracted for a full leave year (e.g. starters and leavers).  This article sets out a summary of the case and its implications, a list of actions employers must take now to avoid being in breach of the law, and future developments to be aware of.

Case summary

Mrs Brazel is a peripatetic music teacher, working variable hours each week during school terms and paid only for the hours she works.  In 2017, Mrs Brazel won an employment tribunal case for unlawful deduction of wages relating to paid holiday against her employer, Harpur Trust.  The Supreme Court decision is the final determination on the case.  It clarifies the provisions set out in the Working Time Regulations 1998 regarding entitlement to paid holiday, and how such holiday pay should be calculated.  These Regulations specify a minimum of 5.6 weeks paid holiday for all workers.

Harpur Trust, in common with many employers, were using the so-called Percentage Method of 12.07% to calculate holiday entitlement and pay.  This is because for full year workers the statutory 5.6 weeks of paid holiday is 12.07% of the remaining 46.4 weeks of the 52 week year.  Using this method, part year workers receive a pro rata holiday entitlement based on the proportion of the year that they work, when compared to a full-time worker.  The Supreme Court decision states that this method is incorrect and that it is contrary to the Working Time Regulations to pro rate the statutory holiday entitlement for part year workers.  Thus, the decision confirms that all workers are entitled to 5.6 weeks paid holiday per year, regardless of how many weeks of the year they work.  Mrs Brazel therefore won her claim for unlawful deduction of wages.

Implications

This case means that all workers are entitled to 5.6 weeks of paid holiday per year, even if they do not work 52 weeks of the year.  All workers therefore accrue leave at a rate of 0.11 days per week (5.6 weeks divided by 52 weeks), regardless of whether or not they work in any given week. Part year workers will therefore receive proportionately more paid holiday than colleagues who work full- or part-time all year round.  Employers who continue to provide less than 5.6 weeks of paid holiday to part year workers are in breach of the law and are liable to unlawful deduction of wages claims, which can be backdated for two years.

Therefore, employers may no longer use the 12.07% Percentage method as this has been deemed unlawful.  Instead, percentage calculation of holiday pay should be made on an individual basis, as follows:

(5.6 divided by number of weeks worked in year) x 100

For example:

Worker 1 works term-time only, 30 hours per week, 40 weeks per year (1,200 hours per year). 5.6 weeks paid holiday is 14% of working time.

Worker 2 also works 30 hours per week but is required to work all year round (1560 hours per year).  5.6 weeks holiday is still 168 hours, but Worker 2 has to work 46.4 weeks of the year so only receives 12.07% of working time as holiday.

Worker 3 works seasonally, 30 hours a week for a total of 28 weeks per year (840 hours per year).  5.6 weeks paid holiday is again 168 hours, but this is 20% of working time.

Payroll systems may be incapable of applying differing percentage calculations to different individuals, so calculations may need to be made manually or alternative methods of accrual used.

The case does not change the method of calculating of holiday pay, which should still be based on 52 weeks average weekly earnings over a maximum 104 week reference period, ignoring any weeks not worked.  Thus, in an extreme example, the decision in this case means that a worker who works only one week a year and is paid £1,000 for that week is entitled to receive £5,600 in holiday pay.

It has long been established that simply paying holiday pay on top of pay for hours worked within each salary payment for part year workers, known as rolled up holiday, is also in breach of the law.  However, many employers have continued to do so albeit separating out pay and holiday pay on the payslip.  In the case of workers with fixed hours per week and a fixed number of weeks worked, such as term time only workers, this may still be possible.  For variable hours workers, however, holiday pay will need to be calculated and paid at various reference points throughout the year.  The Working Time Regulations provide that employers can require employees to take holiday at a particular time, as long as the employee is given twice as much notice as the number of days leave they are required to take.  Term-time only contracts, for example, generally specify that leave must be taken during school holidays but other types of part year contract may not contain specific provision.

Actions Required

Employers should take actions now, both to ensure that all part year workers receive a minimum of 5.6 weeks of paid holiday in the current leave year, and also to protect against future claims.  Local authorities are advised to:

• Identify all part year workers and check whether they receive 5.6 weeks paid leave per year. If not, calculate the cost of providing 5.6 weeks’ paid leave in both the current leave year, and for topping up to 5.6 weeks for two years of backpay.  Note that this potentially affects not only school staff, but also any workers providing support or services to schools, seasonal workers, casual workers or even staff members who have individual flexible working agreements limiting the number of weeks they work.
• Review contract types for each staff group. Ensure that each group is on an appropriate contract and decide if it is necessary to engage these workers on a full year contract or not.
• Identify how records of weekly working hours are currently kept for part year and variable hours workers to ensure that such records support individual holiday pay calculation. Update processes to ensure such records are kept in future.
• Make arrangements to pay additional holiday to part year workers who are identified as receiving less than 5.6 weeks paid holiday in the current leave year. This may not necessarily be all part year workers as, for example, those with long service may already be receiving more than 5.6 weeks of paid holiday where terms and conditions provide for leave entitlement in excess of 5.6 weeks.  Payment made for bank and statutory holidays where the worker is not required to work should be included in the 5.6 weeks.
• Determine an appropriate means of calculating holiday entitlement and pay going forward for each group of affected staff. Consider introducing reference periods and paying holiday at particular points of the year, giving advance notice that the worker must take paid leave.  Alternatively, consider introducing a system allowing part year and variable hours workers to book and take leave based on accrual of 0.11 days per week of the leave year.  For example, for a leave year starting on 1^st April, a worker will have accrued 1.43 weeks of leave by the end of June and the employer may specify that this leave has to be taken (and is therefore paid) in July.  Different methods may be used for different staff groups, as long as all workers receive a minimum of 5.6 weeks paid holiday per year.
• Review contract and work agreement documents to ensure that any periods during which part year workers must take accrued holiday (e.g. during school holidays, or at the end of specified reference periods) are clearly set out.
• Negotiate any necessary contractual changes for affected staff groups.
• Identify any tribunal claims for unlawful deduction of wages in relation to holiday pay which were stayed pending the outcome of the Harpur Trust v Brazel case, as these will now be entitled to proceed. If the facts of the case are similar, it is advisable to seek to settle any such cases as soon as possible.
• Be prepared to respond to questions from any recognised Trade Unions about how your authority is responding to the Harpur Trust v Brazel

If you require advice or support on any individual cases, please contact our employment team via info@seemp.co.uk

Possible Future Developments

In response to the Supreme Court’s decision in Harpur Trust v Brazel, the government has consulted on changing the law determining calculation of holiday entitlement to account for any weeks not worked.  If introduced, new legislation will reverse the current position and reinstate pro rata holiday entitlement for part year workers.  The consultation closed in March 2023.