Supreme Court ruling on holiday pay calculation for part-time workers creates headache for employers

Posted: 03/02/2023

The Supreme Court ruled in July 2022 on the case of Harpur Trust v Brazel that the previous, commonly used practice of pro-rating a part-year worker’s annual leave entitlement based on hours worked was not lawful. However, a new government consultation could reverse this position.

Many organisations have, until now, calculated holiday accrual for employees with variable hours, or employees working for just part of the year, as 12.07% of the hours worked by that employee, as statutory holiday entitlement for full time workers is 12.07% of hours worked.

The Supreme Court, approving the judgment of the Court of Appeal on this point, has held that the 12.07% method is not compliant for part-year workers. It agreed with Mrs Brazel that there was nothing in the Working Time Regulations 1998 to suggest using the 12.07% method. As a result, it was deemed that even though she only worked part of the year, she would still be entitled to the full 5.6 weeks’ holiday.

The rate of pay will be based on the normal hours worked per week, so if the individual works three days per week, then their 5.6 weeks’ holiday pay is based on their weekly earnings (ie money earned from those three days a week). Equally, if their hours are variable each week, then they will be paid based on their average earnings in the past 52 weeks that they actually performed work.

However, if the employee only works part of the year, but does work full time hours in those working weeks, then they will be entitled to 5.6 weeks’ full pay for their holiday entitlement. This is even if they work just two weeks per year, as long as they are on a permanent contract (ie they are required every year for work, rather than hired for a one-off project).

Given the (arguably) illogical advantage that this provides to a part-year worker who works five days per week, but for just a few weeks per year, compared to a part-time worker working three days per week all year, the decision was heavily criticised. As a result, the government has announced in January 2023 that it will consult on the ruling. Under the consultation, the government is considering moving back to a calculation of holiday entitlement based on the hours worked in the previous 52 weeks (including any weeks with no work), and multiplying that figure by 12.07%. The consultation will run to 9 March 2023.

Until it changes, the law (as of January 2023) is that set out in Harpur Trust v Brazel, and so social housing organisations should:

• check holiday pay calculations and take legal advice if uncertain on whether it is paying the correct holiday pay for part-year workers;
• consider whether seasonal/part-year workers need to be hired on this type of contract, or whether they can be hired as casual or bank workers for one-off specific projects (this can be difficult to achieve in practice, so legal advice would be needed before making any changes); and
• check with any agencies used to engage staff to ensure that the agency is applying the correct rates now.

It is likely that the government will change the position in the coming years, so it is advisable to keep updated on this area and look into future changes when they are needed.

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