Last month the Supreme Court published a judgment that ends a long-running debate about how holiday entitlement and pay should be calculated for casual workers.
It is now clear and certain that all workers are entitled to 5.6 weeks’ holiday each year, including those who only work for part of the year. Holiday entitlement for casual workers should not be pro-rated and the approach of calculating holiday pay based on 12.07% of hours worked is wrong.
Charities that have permanent contracts with staff who have no normal hours of work need to review their current practices and consider their options as a priority. Changes may be needed and there could be a risk of claims from staff who have been underpaid.
What was this case about?
The case was Harpur Trust v Brazel. Mrs Brazel was a visiting music teacher at a school run by the Trust. She had a permanent, zero hours contract and was paid an hourly rate for the work she carried out. She worked mainly during term-time and didn’t have fixed working hours or days. The school made three payments to Mrs Brazel at the end of each term to account for holiday pay. The payments were calculated by multiplying the hours she’d worked that term by 12.07% and then multiplying that figure by her hourly rate of pay.
Mrs Brazel brought a claim against the school arguing that this was wrong. She said that a pro-rata approach had no basis in law and that the statutory formula entitled her to more holiday pay.
When the case was first heard in the Employment Tribunal, it was decided that the school had been right to apply a pro rata principle as this avoided a situation where workers who only worked part of the year would end up better off than workers with fixed hours. As the case progressed to the Employment Appeal Tribunal, the Court of Appeal and, ultimately, the Supreme Court, however, the decisions went against the school. The higher courts all concluded that holiday pay should be calculated using the statutory formula, even if that meant that term-time teachers like Mrs Brazel received proportionately more holiday pay than teachers who worked full-time.
The Supreme Court’s decision is final and there is no further course of appeal.
It has been common practice to use the 12.07% formula to calculate holiday pay for staff with variable hours and pay, the logic being that paid holiday is a reward for work done and should accrue in proportion to working time. Now-withdrawn ACAS guidance even recommended this approach.
Following the Supreme Court’s decision, we now know this is wrong – holiday entitlement must not be pro-rated to take account of weeks not worked. Instead, holiday pay for workers with no fixed hours must be calculated based on their average earnings over the last 52 weeks (until April 2020, the requirement was only to look back 12 weeks). Weeks when no work was done are ignored and earlier weeks are then brought into the calculation, going back up to 104 weeks.
Although it might feel unfair, this means that the greater the number of non-working weeks a worker has, the greater their holiday pay will be as a percentage of their annual earnings.
Step by step
Charities should act without delay to assess whether their staff are affected by this decision and, if so, to decide what steps to take. This can be a complex exercise and there are many factors to take into consideration. Careful thought will be needed to assess the impact and risks in each case.
Our specialist charity employment lawyers are on hand to help you:
- Work out who is and isn’t affected – this decision won’t affect all part-time or part-year staff, only those who have no fixed hours of work. It only affects staff engaged on permanent contracts and doesn’t apply to short-term hires or genuinely self-employed contractors.
- Assess potential liability – you’ll need to look back to work out the difference between the holiday pay casual staff have received and the pay they were entitled to. You then need to decide whether to make offers to settle historic underpayments and, if so, how far back to go. Generally, claims can only look back 2 years and a gap of more than 3 months between payments may break the chain of deductions.
- Plan for the future – you need to think about how will you communicate changes in holiday pay calculations to affected staff. Is this an opportunity to review your use of casual contracts? Could you limit the impact of this decision by ensuring that casual staff work regularly?