Holiday Changes – Harpur Trust V Brazel

A recent Supreme Court judgement in Harpur Trust V Brazel has made us change the way in we calculate holiday entitlement and pay.

The judgement affects part-time staff, with irregular hours, that work part of the year and also employees on zero hour contracts. It does not affect part-time staff that work regularly each week.

Background to the case

The claimant was a music teacher employed on a zero hours basis (term time only worker with varied working hours and not required to work every week). Since 2011 her employer applied the 12.07% accrual method to link her holiday entitlement to the number of hours actually worked and paid this at her usual hourly rate.

She bought a claim for unlawful deduction from wages in the employment tribunal. The Supreme Court decided that applying the 12.07% accrual method did not comply with the Working Time Regulations (WTR) in this case resulting in the claimant receiving an underpayment of holiday pay.

What type of worker is impacted by the decision?

The Supreme Court’s decision covers the following worker categories who are permanently employed:

  • Part-year workers (varying hours – do not work every week)
  • Term-time / sessional workers
  • Zero-hours workers
  • Irregular hours worked

NB. Permanent part time workers that work every week are not affected by this decision and you should continue to calculate holiday entitlement and pay in your normal way.

What does this mean for calculating holiday going forward?

All employees are entitled to a minimum of 5.6 week’s paid annual leave (capped at 28 days) and can only be pro-rated upon joining or leaving employment part way through a year. The Working Time Regulations does not set out how to convert this entitlement into days or hours for workers with irregular hours. In some cases, employers may explore allowing their workers to take holiday in blocks of one week to ensure pay calculations are correct and based on average weekly pay.

Workers will be entitled to a week’s pay for each week of holiday and the WTR stipulate that pay must be calculated using 52 week’s pay provision to calculate ‘normal remuneration’. 

The general principle is that pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work. Therefore you should calculate holiday pay based on the following calculation:

  • Calculate 52 weeks’ of pay data (week is Sunday to Saturday), you should discount any week in which no remuneration was received, and going back up to a maximum of 104 weeks
  • Use the preceding 52 week reference period to calculate average weekly pay.

Is there still a place for the 12.07% accrual method at all?

Unclear at the moment but if you are currently using 12.07% to calculate holiday entitlement and pay then you need to check this does not produce an underpayment. Employers who continue to use the percentage accrual approach should be aware that it carries the risk of liability for claims in respect of underpayment of holiday pay or a breach of the WTR.

Where do we go from here?

Assess your workforce – who is affected by this decision and how is their holiday entitlement and pay currently being calculated. Where an individual’s contract refers to 12.07% method then this will need reviewing and amending to ensure it is based on 5.6 weeks entitlement and the recommended reference period of pay of 52 weeks.

Liaise with your payroll provider as to how practical it will be to calculate holiday pay using the existing system.

Unfortunately, not all of the issues that this decision raised were addressed by the Supreme Court. It appears that this decision could also treat a part time worker working part of the year more favourably than a full time employee.

Get in touch with our team today!