Major Supreme Court ruling finds paid holiday for part-year workers cannot be pro-rated

On 20 July 2022, the Supreme Court upheld the Court of Appeal’s earlier decision in Harpur Trust v Brazel that part-year workers should not have their paid holiday pro-rated. Here, we explain the implications for employers who engage staff members that do not work the entirety of the year, such as term-time only staff.

What are the laws on paid holiday?

The Working Time Regulations 1998 (the WTR) provide that a full-time employee or worker is entitled to 5.6 weeks of paid holiday per year. Under section 224 of the Employment Rights Act 1996 (ERA), those working atypical hours will have their holiday pay calculated using their average earnings over the preceding 52 weeks. Any week in which the worker did not work, or earn wages, is ignored.

Previously Acas guidance stated that holiday pay entitlement for those working atypical hours be calculated at 12.07% of the hours worked in the preceding week. This was on the basis that when 5.6 weeks’ statutory holiday is deducted from the 52-week calendar year, the working year amounts to 46.4 weeks. 5.6 weeks annual leave equates, therefore, to 12.07% of the working year.

Harpur Trust v Brazel

In this case, Ms Brazel was a music teacher for a school run by the Harpur Trust. Her contract was permanent, but for term-time only. Ms Brazel was paid for the hours she taught, which varied weekly.

Ms Brazel took annual holiday at the end of each term, in three tranches.

In line with Acas’ now removed guidance, when calculating her holiday pay, the trust multiplied the hours Ms Brazel worked by 12.07%, and then multiplied that figure by her hourly rate of pay.

Ms Brazel brought an unlawful deduction of wages claim in the Employment Tribunal, arguing that the correct approach in terms of her holiday pay was to apply the “week’s pay” calculation set out in s224 of the ERA. The trust argued that, among other things, it was absurd that some who worked for a few days each year would be entitled to a larger percentage of holiday pay than someone who worked full time.

The Employment Tribunal dismissed Ms Brazel’s claim, but the Employment Appeal Tribunal (EAT) and the Court of Appeal (CA) upheld her appeal. The matter reached the Supreme Court, which upheld the EAT’s and the CA’s decision, rejecting the practice of paying 12.07% of holiday pay per hour worked.

What is the correct approach to holiday pay for part-year workers?

The Supreme Court found that the entitlement to 5.6 weeks’ holiday applies to full and part-year workers, without pro-rating. For those with no normal working hours, pay ought to be calculated by averaging the number of hours worked over the previous 52 weeks.

What should you do?

If you have employees or workers who work only part of the year, for example term-time workers, seasonal workers or those on zero hour contracts, you should:

• review and amend contracts of employment and payroll processes for the calculation of holiday pay
• conduct an assessment of the financial liability you may face for those staff members being paid using the previous method of 12.07% holiday pay per hour
• address whether you may face claims of unlawful deductions from wages. Employees and workers can seek to recover deductions made over the period of two years before the date of the claim.
• note that you may face arguments from outgoing employees that their accrued but unused holiday pay entitlement on termination of employment should be increased to take into account the underpayment of holiday pay which results from using the 12.07% method. This would not be limited to two years, but instead their claim could only go back a maximum of one year (i.e. for underpayment for 5.6 weeks statutory annual leave entitlement) or to the start of the current holiday year, or to the start of their employment if that is within the current holiday year.

We’re here to help

If your business requires any support on this or any other matter, our team of employment lawyers can help.

Matthew heads our employment law team. He handles the full range of employment law issues for clients which include multi-national companies, owner-managed businesses and not-for-profit organisations. He is recommended by independent legal directory Chambers and Partners.