August 11, 2022

Employee’s holiday entitlement and pay can be a complicated issue

Going on holiday

As people head off on their well-deserved summer breaks, employee’s holiday entitlement and pay can be a complicated and divisive issue. This is particularly so for those who work irregular hours and are paid per hour, which we see a lot of in sectors such as health and social care, hospitality and retail.

In a recent and long anticipated decision, the Supreme Court has provided clarity about holiday entitlement and pay, which will have wide ranging implications for employers.

Starting point

Employees and workers in the UK are legally entitled to 5.6 weeks holiday per leave year. For those who work full time (5 days a week), this equates to 28 days holiday (20 days plus 8 bank holidays).

Previously all members of staff who work variable or irregular hours had their holiday entitlement prorated. There was also two different ways in which holiday pay was calculated, namely the average number of hours worked in the preceding 52 weeks (it was previously 12 weeks) or by using the figure from 12.07% of annualised hours.

The case

In Harpur Trust v Brazel [2022] UKSC 21, Mrs Brazel was a part-time music teacher who worked during term-time under a permanent zero-hours contract. She was entitled to 5.6 weeks holiday per year.

The Trust calculated Mrs Brazel’s holiday pay based on 12.07% of a term’s pay. Mrs Brazel argued that this was not the correct approach to adopt and claimed that she was being underpaid in respect of holiday pay. The Trust, having followed ACAS guidance at the time (which has since been rewritten), calculated holiday pay on the 12.07% basis in order to avoid an unfair windfall for casual workers who, by their very nature, work fewer hours per year compared with full-year staff.

Mrs Brazel brought several claims, including a claim for unlawful deduction of wages. Whilst the Employment Tribunal originally dismissed her claim, the Employment Appeal Tribunal and Court of Appeal found in Mrs Brazel’s favour.

Upon a final appeal by the Trust, the Supreme Court had to determine Mrs Brazel’s holiday entitlement and pay. They concluded that she was entitled to 5.6 weeks holiday, namely 28 days, even though she only worked part of the year (during term time)– and that her holidays must not be prorated to be proportional to that of a full time worker (working the whole year). In addition, the Supreme Court determined her holiday pay should be based upon an average of the preceding 52 weeks, whilst ignoring any weeks in which Mrs Brazel did not work.

What does this mean for you?

This is an important and noteworthy case which has provided clarity and settled law in relation to the calculation of holiday pay and entitlement.

Although this case was about an employee who was employed under a part-year contract, it will have significant repercussions for businesses who employ permanent staff under a zero-hours contract. It will be particularly significant to those sectors where zero-contracts are a common way of engaging staff.

This judgment confirms that those who are employed under a permanent contract to work part of the year, are entitled to 5.6 weeks’ holiday. In addition, calculating holiday pay using the 12.07% approach is no longer legally compliant. If you have been using this calculation, this should be amended to the individual’s average weekly remuneration in the 52 weeks preceding their holiday, excluding any non-working weeks.

The side effect to this decision is that holiday entitlement and calculating holiday pay using the 52 week method, may result in permanent part-year casual workers receiving proportionately more holiday entitlement and pay than their full-year colleagues. Employers should therefore be mindful of any backlash from staff, including complaints and formal grievances.

In addition, businesses should be mindful that they could face backdated claims from staff about holiday pay, so it’s important to assess if you need to change your approach to calculating future holiday payments. Although claims will be subjected to the Deduction from Wages (Limitation) Regulations 2014 which limits claims to any deductions made in the past two years, this could still have significant cost implications for employers who engage zero-hours workers.

How can we help you?

Calculating holiday pay can be tricky, but we have significant experience in advising on these issues in practice. We can help you review and implement appropriate practices to manage your risks, as well as identify if holiday pay has been historically underpaid.

Get in touch

Please contact Chris Amys, Solicitor in our Employment team: