19 March 2018

Most employers know that for workers whose hours of work are fixed calculating holiday pay is relatively straightforward – a week’s holiday attracts a week’s pay. Bear in mind entitlement to holidays is afforded to the wider subset of individuals who are considered “workers” (and not just “employees”).

But how is holiday pay calculated for those whose hours are erratic, such as casual workers? In such cases a week’s pay may not be so clear. 

This was the issue the Employment Tribunal had to consider in Brazel v The Harpur Trust. In this case the Claimant worked at term-time on a zero hours contract. The Respondent calculated holiday pay pro rata to the proportion of the year worked, Thus holiday pay was paid at 12.07% of a term's pay. This was arrived at by dividing 5.6 weeks into 46.4 weeks. Given the Claimant worked term time, a working year amounted to 32-35 weeks which meant that holiday pay came out lower than if the Respondent had adopted the approach within the Employment Rights Act (which requires a 12 week average of pay from weeks where remuneration was payable). The Employment Tribunal upheld this approach as legitimate (which was an approach ACAS had suggested was legitimate in a Note they had issued).

Upon appeal by the Claimant, the Employment Appeal Tribunal decided that the Employment Tribunal had taken the wrong approach. There was no way round using the approach set out in the Employment Rights Act as to calculating a week’s pay (even if that potentially gave casual workers a windfall in some cases). A week’s pay should be based on a 12 week average, using the last 12 weeks during which remuneration was payable.

In this particular case the effect of the 12 week average approach was that holiday pay as a percentage of annual earnings for a part time worker on a 32 week year would be 46.4/32 x 12.07% which amounts to 17.5%. That yielded proportionately more holiday pay than a worker working throughout the year. That was not a relevant consideration since holiday pay required to be calculated according to the statutory rules.

The Employment Appeal Tribunal emphasised the principle that part timer workers are entitled to be treated no less favourably than full-time workers. There was no principle that required an interpretation to be placed upon the rules that would avoid a windfall for part time workers or to avoid full time workers not being treated less favourably than part time workers.

Thus holiday pay is calculated in each case by applying the rules as set out in the Employment Rights Act.

This is an extremely important case with potentially large ramifications. The Employment Appeal Tribunal noted that the judgment would be important within the education sector in particular, but the principle is of universal application and care is needed. For those workers whose hours vary, calculation of holiday pay will need to be carefully considered. There may well be an appeal to the English Court of Appeal to test the principle but it is unlikely that this is the end of the matter.

The full judgment can be found here.

To discuss further please contact one of our BTO employment lawyers on 0141 221 8012.