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Holiday pay entitlement for part-year employees – not a simple 12.07% of hours worked

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In the recent case of Harpur Trust v. Brazel [2019] EWCA Civ 1402, the Court of Appeal considered whether the holiday entitlement of a permanent employee who worked only part of the year should be prorated to that of a full-year worker.

Legal position

The statutory minimum holiday entitlement for all workers is currently 5.6 weeks per year under the Working Time Regulations 1998 (WTR). Many employers calculate this entitlement for part-time employees by calculating 12.07% of hours worked. This method is not prescribed by the WTR but is useful to make calculating holidays easier for those who work reduced hours throughout the year. However the Brazel case makes clear that this method of calculation cannot be applied to all types of part-time contracts.

Facts of the case

Ms Brazel was employed by Harpur Trust (the Trust) on a zero hours permanent contract as a “visiting music teacher”. The length of school terms varied and she gave no lessons in school holidays. Under the WTR she was entitled to 5.6 weeks’ paid annual leave. The Trust based its holiday pay calculations on an Acas booklet for calculating the pay of casual workers. That booklet stated that holiday entitlement of 5.6 weeks was equivalent to 12.07% of hours worked over a year. The Trust calculated Ms Brazel’s holiday pay entitlement at the end of each term (April, August and December) and paid her one third of 12.07% of this figure in three equal payments.

Ms Brazel brought claims in the employment tribunal of unlawful deductions from wages and less favourable treatment based on part-time status. She argued that the Trust’s method was wrong. The correct approach was to calculate a week’s pay by taking her average weekly remuneration for the 12 weeks prior to the calculation date and then, to get her annual holiday pay entitlement, to multiply that rate by 5.6.

Ms Brazel lost at first instance but had more success in the Employment Appeal Tribunal (EAT). The EAT found that there is no requirement in the WTR to prorate holiday pay for part-time employees. It also noted that the tribunal had overlooked the fact that while part-time workers were not to be treated any less favourably than full-time workers, they could be treated more favourably as there was no equivalent requirement to protect full-time workers. The Trust appealed.

Decision of the Court of Appeal

The Court of Appeal upheld the judgment of the EAT. It agreed that there was no requirement to prorate holiday pay entitlement for part-year workers. The court did not believe that omitting prorating was unfair to full-year workers, as Ms Brazel was employed under a permanent contract. It also noted the attraction of having the same pay entitlement for all permanent employees.

Comments

Employers may find that, with the reporting of this decision, more employees start to argue that they are suffering unlawful deductions from holiday pay. We recommend that employers review the range of part-time working arrangements that they currently have in place and consider (again) the method of calculating their holiday entitlement. Where workers do not work part of the year, it may be worth calculating the differential.

Although the Court of Appeal was clear that its findings applied to individuals on permanent contracts which required them to work for part of the year, there may be instances of employees with more casual working arrangements making similar challenges.

It is also worth noting that the WTR will be amended from 6 April 2020 by the Employment Rights (Employment Particulars and Paid Annual Leave) Regulations 2018. The regulations change the reference period used to calculate pay due where a worker has a variable remuneration. Where a worker has been employed for at least 52 weeks, the reference period will be extended from 12 weeks to 52 weeks. Where they have been employed for fewer than 52 weeks, the reference period is the period that they have been employed.