The Supreme Court has recently ruled on calculating holiday pay for part time workers. These important changes to holiday pay means that part time workers are entitled to minimum pay irrespective of how many hours they actually work.
Bit of background
In a recent case (Harper Trust v Mrs Brazel), the latter was employed by the Trust on a zero-hours contract as a visiting music teacher. She only worked during the term time equating to 32-35 weeks each year, so a part time worker. Her average week would look like 10-15 hours paid per hour and monthly in arrears.
Mrs Brazel was entitled to 5.6 weeks paid holiday but when the Harper Trust calculated her holiday entitlement based on the previous term the result was less than 5.6 weeks. The method of calculation was by using a multiplier of 12.07% (ACAS set previous percentage).
The plaintiff basically argued that this method of calculation meant her holiday pay was incorrect and there was an underpayment.
The Supreme Court decided all workers were entitled to 5.6 weeks paid holiday per year. The holiday pay should be calculated by averaging pay over a reference period of 52 weeks. The Court acknowledges that this position could leave a part time worker in a better position than a full-time worker when it comes to holiday entitlement.
Who is affected
If you are an employer and you have workers engaged for the entire year, then you will be affected by these changes if you will have employees on:
- Term time only contracts
- Zero hours contracts
- Annualised hours contracts
Those workers who are full time employees and part time employees with fixed weekly hours (and working the full year) are not impacted.
What this means for employers
This decision will impact workers without normal working hours.
A part-year worker’s annual leave must be calculated as 5.6 weeks, in the same way as everyone else, without a proportionate reduction being made due to the fact they work fewer weeks in the year compared to full-time and part-time workers.
Calculating holiday pay based on 12.07% of annual earnings is incorrect and should no longer be used.
Instead, holiday pay for part-year workers should be calculated using the averaging method 52 weeks at the time of the claim, ignoring any weeks that have not been worked.
This is likely to result in higher rates of holiday pay for workers. You can go back up to 104 weeks to get 52 weeks of pay.
- Even if paid monthly you need a weekly figure.
- Include Salary, Bonus, Commission, Holiday Pay.
- Sick Pay needs to be treated as full pay.
Each Leave Period
Every time an employee takes leave, it is paid on their average weekly pay in the reference period directly before the leave period.
If they take one day, you need to calculate the average pay for a week and pay for one day.
If they take a week leave, you need to calculate the average pay for a week and pay for the week.
Based on an employee who has only been with the company for 3 months and has salary of £9.50 per hour.
|Week||Hours||Include||Weekly Pay £|
Total Salary for reference period £1,567.50
Total weeks worked 9
Average weekly pay £174.17
Another example on the big difference
Employee on payroll for 3 years and does ad hoc work every now and then when needed and paid £9.5 per hour.
Paid 12.07% of earnings in the past for holiday pay.
Worked full time during the summer period, 8 weeks in total.
Now needs to be paid 5.6 weeks of holiday at 35 hours per week
- Old calculation £321.06
(35 hrs x 8 weeks = 280 hrs, £9.5 x 12.07% = 1.14665, 280 hrs x 1.14665 = £321.06)
- New calculation £1,862
(35 hrs x £9.50 = £332.50, £332.50 x 5.6 weeks = £1,862)
The new rules must be followed immediately.
Employees have the right to be paid back pay but it is not yet clear for how long. We wait and see.
What you need to do
You can reduce the amount to be paid if you process employees as starters and leavers after each project/work has been completed but this will be more time consuming on the administrative side.
As an employer you should check if they have any workers whose holiday pay is being calculated based on 12.07% of pay multiplied by 5.6 weeks or via another method that results in them having a pro rata entitlement. If so, you will need to change how you calculate holiday pay.
You need to change their practices going forward.
You may also want to consider whether to make back pay payments to affected employees and, if so, over what period.
Doing so will reduce the risk of claims but may also be a significant cost. If you decide to pay back pay that may involve careful consideration of how long employees might be able to claim compensation for in an unlawful deduction from wages claim.
None of us are sure of what happens next. We know there are going to be more announcements over the coming months. We will of course keep you posted.
In the meantime, if you have any questions about any of the above, please call or email your manager at Myers Clark.
If we are processing your payroll and know that you are impacted by this change we will contact you directly. But if we are not processing your payroll and you need help to calculate the figures do get in touch by emailing firstname.lastname@example.org.