On 20 July 2022 the Supreme Court delivered its judgement on the issue of statutory holiday pay entitlement for employees who are employed from year to year but are contractually only required to work at certain periods during the year (‘part-year workers’).
This has caused some difficulties for employers who engage part-year workers regarding how they should be calculating holiday pay. Since this time, the Government have launched a consultation, which closes on 9 March 2023.
Background
Mrs Brazel was engaged by the Harpur Trust as a music teacher where she was only required to work during term time. She claimed that there had been an underpayment of wages by her employer, the Harpur Trust, based on the fact that, in recent years, her holiday pay had been calculated using the “percentage method”. After being considered by an Employment Appeal Tribunal and the Court of Appeal the case was finally heard by the Supreme Court in November 2021 and its judgement handed down on 20 July 2022.
The circumstances of the case itself may be mirrored by many charitable organisations who employ individuals all year round, but where those individuals are required to work sporadically or on a seasonal basis. In line with previous ACAS and BEIS guidance, many employers, including charitable organisations, have adopted the percentage method for calculating holiday pay entitlement, paying 12.07%* of an individual’s pay, pro-rated based on their working hours in the preceding 12 weeks.
Supreme Court judgement
The Supreme Court found that using the percentage method to calculate a part-year worker’s holiday entitlement does not comply with the Working Time Regulations 1998. All part-year workers are entitled to 5.6 weeks of holiday, regardless of their working hours or what proportion of each year they work. This should not be reduced for part-year workers, even though in some cases it could lead to such workers receiving disproportionately more holiday entitlement than full-year workers.
A distinction should be made at this point between part-time workers and part-year workers. Part-time workers are also entitled to 5.6 weeks’ holiday; however, this can be adjusted to take into account the actual hours worked. For example, someone who works all year, 4 days a week would be entitled to 80% of the 5.6-week entitlement: 22.4 days. Whereas under the new judgement, part-year workers are entitled to the full 5.6 weeks, regardless of what hours they work.
The Government consultation
Since this judgement, the Government have issued a consultation seeking views on whether to reinstate the pre-Harpur v Brazel approach (the 12.07% formula) to calculate the holiday entitlement of part-year and irregular hours workers. Many employers will be familiar with this formula as being the previously accepted approach which was supported both by ACAS and the Government.
What impact does the decision have for charities?
While the consultation is ongoing, the Supreme Court judgement is technically the approach charities should be taking. This means that employers should be considering their current procedures for determining and paying holiday pay until such time as the rules may be changed. You may wish to respond to the consultation with your comments.
In the meantime if you have any questions or wish to discuss this further, please feel free to contact Caroline Jones, employment tax director, who will be able to help.
*(5.6 weeks/46.4 working weeks = 12.07%).
Subscribe to receive the latest BDO News and Insights
Please fill out the following form to access the download.