In the case of Harper Trust v Brazel, the Supreme Court has confirmed that workers who only work for part of the year, but on permanent contracts, are effectively entitled to the same holiday allowance as workers who work all year.
The Working Time Regulations entitle workers to 5.6 weeks’ paid annual leave. Where an employee does not have regular working hours, employers are to calculate holiday by looking at average earnings over the previous 52 weeks, discounting weeks where no work was carried out. This can be a tricky calculation where the employee works irregular hours, requiring detailed records of hours worked, even in cases where employees do not work on an hourly basis. As such, some employers have calculated holiday pay in such circumstances by applying 12.07% of pay per hour or pro-rating holiday entitlement to reflect the number of weeks employees actually worked in a year.
The Supreme Court’s decision means the % approach above should no longer be used. Employers must calculate the average pay received during the 52 week period prior to the employee taking annual leave, ignoring any weeks where the employee did not work.
This decision will impact those employees with atypical working patterns who do not work a full leave year. The obvious example would be an employee in the education sector which operates on a termly basis, as was the case for the claimant in this case. However, a number of employers in other sectors have flexible arrangements, such as working only term time dates or irregular working hours. Whilst employees who work on part time contracts are not affected, zero hours employees who do not work a full year will be.
The ruling could potentially have a large financial impact on employers who have staff who do not work all year round, in addition to having an employee relations impact. It will be difficult for employers to explain to part time employees why they are entitled to less holiday pay than an employee who works the same number of hours in total across the whole year, due to their atypical working pattern. Effectively, a term time worker would receive holiday pay representing a higher proportion of their annual pay than a part time worker working regular hours, or indeed a full time worker. Employers may want to use this as an opportunity to review the working patterns they have in place and particularly how permanent contracts are used for employees working different patterns. Employers may also face questions from workers about whether, in light of this judgment, they are owed back pay of holiday in respect of any underpayments.