In an important decision, the Employment Appeal Tribunal recently confirmed that calculating holiday pay for part-time or term-time workers based on the established calculation of 12.07 percent of annualised hours is not correct.
Going forward, this ruling could also affect the way holiday pay is calculated for casual and zero hours workers, as well as employees with variable or irregular hours.
Employees in the UK are legally entitled to 5.6 weeks holiday per leave year. For employees who work full time (five days a week), this equates to 28 days holiday (20 days plus eight bank holidays).
Employees working part-time or term-time, as well as those on variable or irregular hours, receive the pro rata equivalent number of holiday days under their contracts.
Historically, there have been two different ways in which holiday pay for term-time workers is calculated:
• average hours worked in the preceding 12 weeks immediately before payment is made (under the Employment Rights Act 1996); or
• by working out 12.07 percent of annualised hours.
However, the case of Brazel v The Harpur Trust identified that it may not be appropriate to use the ‘12.07 percent method’ of calculating holiday pay, depending on the working pattern of the individual concerned.
Mrs Brazel was a part-time music teacher, working mainly during term-time under a zero-hours contract. Her contract of employment reflected the statutory minimum in terms of annual leave, 5.6 weeks.
The Trust calculated Mrs Brazel’s holiday pay based on 12.07 percent of a term’s pay. Mrs Brazel argued that this was not the correct approach to adopt and meant that she was being underpaid during holiday periods.
The Trust argued that, having followed ACAS guidance, they calculated holiday on the 12.07 percent basis in order to avoid an unfair ‘windfall’ for term-time only workers who, by their very nature, work fewer than the standard 46.4 week working year (52 weeks less 5.6 weeks statutory leave).
The Employment Tribunal agreed with the Trust and found that to calculate holiday pay using any other method would result in the term-time employee receiving holiday pay equivalent to 17.5% of annualised hours, higher than a comparable full-time employee.
The Employment Appeal Tribunal, however, upheld the appeal and found in Mrs Brazel’s favour. The tribunal held that the 12.07 percent calculation was incorrect and actually produces a lower value than the 12 week (Employment Rights Act) calculation and therefore could result in an underpayment of holiday pay for term-time employees.
Bearing in mind the overriding principle to ensure that part-time workers are not treated less favourably than full-time workers, the EAT confirmed that the correct approach was the 12-week calculation, regardless of whether this would produce a more favourable outcome.
As above, calculating holiday using the 12 week method could result in part-time workers receiving proportionately more holiday pay than their full-time colleagues, despite the part-time worker working for a smaller proportion of the year.
This case has provided some clarity in the calculation of holiday pay, an often controversial area. The judgment serves as a reminder to employers of part-time or term-time employees who should be mindful of the possibility of underpayment of holiday pay if using the 12.07 percent approach.
If you have been using this calculation, it may be worth considering whether this should be amended to the 12-week calculation. It’s possible that employers could face unlawful deductions from wages claims for underpayment of holiday pay, so it’s important to assess if you need to change your approach to calculating future holiday payments.
Pip Galland is a solicitor in the employment department at Royds Withy King.