The 2022 Supreme Court decision in Harpur Trust v Brazel is one of the most significant holiday pay cases of recent years. As a result of the implications of the decision, the Government recently commenced a consultation exercise on the calculation of holiday entitlement for part-year and irregular hours workers. The consultation period ends on 9 March 2023.
What is the background to the consultation and what is the Government proposing?
Ms Brazel was a music teacher employed under a permanent zero-hours contract who worked irregular hours during the school year. The Supreme Court upheld the Court of Appeal’s ruling in 2019 that both holiday entitlement and holiday pay for “part-year” workers on permanent contracts (with irregular hours), could not be reduced pro-rata to reflect the actual hours worked during the year. Accordingly, workers such as Ms Brazel should receive:
- The full statutory minimum 5.6 weeks’ paid holiday entitlement per year provided for under the Working Time Regulations 1998 (the Regulations); and
- Their pay for this holiday must be based on the Calendar Week Method of averaging a week’s working hours (averaged over a 52-week period and using weeks where they actually worked).
For more details of what the decision means in practice see our Q&A here.
Although the Calendar Week Method might produce a more favourable outcome for workers with an atypical work pattern, the Supreme Court said this did not justify a wholesale revision of the statutory scheme.
As a result of the Supreme Court decision in Harpur Trust, part-year workers are now entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year. The Government is keen to address this disparity.
It wants to ensure that the holiday pay and entitlement received by workers is proportionate to the time they spend working. The Government estimates that, following the Supreme Court decision, between 320,000 and 500,000 permanent term-time and zero-hours contract workers will receive more holiday entitlement. Approximately 37% of these work in the education sector. The Government also considers that between 80,000 and 200,000 agency workers may receive more holiday entitlement. According to the Impact Assessment accompanying the consultation paper, it is estimated that the annual cost to employers of increased holiday pay is between £50m to £250m.
The comprehensive consultation paper refers to the background to holiday pay and entitlement and the relevant legislation, specifically the Working Time Regulations 1998 (the Regulations) and the Employment Rights Act 1996 (ERA). The consultation paper also includes definitions of the terms used:
- Part-year workers – workers who only work for part of the year and are unpaid for the remainder of the year.
- Part-time workers – workers who work fewer hours than a full-time worker.
- Workers with irregular hours – workers who have a completely irregular, non-repeating working pattern.
What are the Government's key proposals?
- The Government is considering introducing legislation to resolve the anomaly arising from Harpur Trust by allowing employers to pro-rate holiday entitlement for part-year workers and workers with irregular hours so that they receive leave in proportion with the total annual hours they work.
- It believes that the simplest way to do this would be to introduce a 52-week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period.
- This would bring the holiday pay and entitlement of part-year workers in line with the entitlements received by part-time workers who work the same number of hours across the year.
- The Government proposes that the weeks in which workers perform no work are included in the 52-week holiday entitlement reference period.
- The Government proposes that for part-year workers and workers with irregular hours, holiday entitlement should be calculated by employers as hours worked in the previous 52 weeks x 12.07% which will give the annual statutory entitlement in hours.
- The percentage 12.07% derives from dividing the 5.6 weeks of annual leave by 46.4 weeks which is the number of working weeks. The consultation paper includes a number of worked examples showing a comparison of holiday entitlements when the reference period includes/excludes unworked weeks and a comparison between part-year and part-time workers.
There is no doubt that the holiday entitlement and holiday pay legislation is complex. Further, the extensive amount of case law about how to calculate holiday entitlement and about what to include when calculating holiday pay can be challenging for employers. Unsurprisingly, the Supreme Court decision in Harpur Trust featured high up our list in the Employment Law Top Ten of 2022, coming in at number two.
It is the Government’s view that new legislation for calculating holiday entitlement for part-year and irregular hours workers would be helpful, providing clarity for workers and employers. The consultation period ends on 9 March 2023 but it may be many months before we have the Government’s response.
In the meantime, as a reminder, there is an online calculator to help employers calculate statutory holiday entitlement for some of the different types of working patterns. There is also separate Government guidance on holiday entitlement and the consultation paper itself can be accessed here.
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