Supreme Court judgment on holiday pay

In a significant judgment which will impact upon many employers with seasonal or part-year staff, but who are retained year round, the Supreme Court in Harpur Trust v Brazel has ruled that these types of workers will be entitled to the same holiday as their full-time counterparts without a pro-rata reduction.

The court reviewed the wording in the Working Time Regulations 1998, which is the legal source of the right to 5.6 weeks’ minimum holiday per year, and determined that the legislation does not provide any scope for the reduction of a worker’s holiday entitlement on the basis that they only work for part of the year. This means they will still be entitled to 5.6 weeks’ leave, just as those who work all year round. The court did acknowledge that this will favour those part-year workers compared with their colleagues, but this was not enough to override the court’s interpretation of the legislation.

The court within the same case also examined the entitlement of these types of workers to holiday pay. Historically, in line with guidance issued by Acas and others, many employers calculated holiday pay for these individuals based upon a percentage (12.07%) of hours worked. This figure is used on the basis that the 5.6 week leave entitlement is 12.07% of the working year of 46.4 weeks (52 weeks minus the 5.6 weeks of holiday). The Supreme Court found that this will no longer be legally compliant. The correct method is to calculate the individuals average weekly earnings over the previous 52 weeks (at the time the claim was brought the law was 12 weeks) and pay an average weekly rate of pay for each week of annual leave taken.

How should it work in practice?

By way of demonstration, the facts of this case were that Mrs Brazel was a term-time only music teacher, employed by the school all year round, whose hours varied each working week depending upon the needs of the school for children who wanted tutoring in Mrs Brazel’s chosen instruments. She was deemed to take her holidays during the school holidays per her contract.

The school calculated her holiday pay based on a calculation of 12.07% of the hours worked during each term, for which she was then paid at the end of said term. For example, in one term which she worked 127 hours, she was paid 15.33 hours of holiday pay (12.07%) at her hourly rate of £29.50. She therefore was paid £452.20 worth of holiday pay. 

Under Mrs Brazel’s contended method of calculation, which the Supreme Court endorsed in its judgment, she was entitled to be paid 5.6 weeks’ of pay in three instalments at the end of each term. For each instalment of 1.87 weeks the school should conduct a calculation of her previous 12 working weeks (as was law at the time), ignoring any week she did not earn, and work out her average weekly pay. Using the same school term as above, her total hours worked in the reference period were 149.5. She was therefore paid £4,410.25 in the same 12-week period. Her average weekly pay was therefore £367.52 (£4,410.25 divided by 12), and she should have been paid holiday pay totalling £687.26 for that 1.87-week tranche of holiday (a difference of £235.06).

As this demonstrates, this ruling could mean that a significant financial underpayment has been made to many part-year workers over a two-year period for which they could claim.

If you require any advice, or have any concerns in relation to this issue, please do not hesitate to contact us and one of our specialist employment advisors can review your holiday pay arrangements with you.