Q&A: Holiday pay for “part-year” and irregular hour workers – what does Harpur Trust v Brazel mean in practice?

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 (in this case with irregular hours), could not be reduced pro-rata to reflect the actual hours worked during the year.

In summary, such workers must now receive:

• The full statutory minimum 5.6 weeks’ paid holiday entitlement per year; 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).

Employers can still determine when holiday is taken (e.g. during school holidays) and will still use the worker’s hourly rate of pay when paying for holiday although employers who also have variable rates of pay will have the additional burden of working out the correct hourly rate to apply.

What is the background to the case?

Ms Brazel was a music teacher employed under a permanent zero hours contract who worked irregular hours during the school year, varying between 32 and 35 weeks. In accordance with Acas guidance at the time (which has since been removed), the Harpur Trust calculated her holiday pay entitlement at the end of each term as 12.07% of the hours she worked in the preceding term. The 12.07% figure was calculated on the basis that:

• When 5.6 weeks’ statutory holiday is deducted from the 52 week calendar year, the working year amounts to 46.4 weeks; and
• 5.6 weeks’ annual leave equates to 12.07% of a working year.

This is known as the “Percentage Method” of calculation.

Ms Brazel argued that the Harpur Trust was wrong to calculate her holiday pay in this way. Instead, Ms Brazel argued that her employer should apply the “week’s pay” calculation, which at that time was set out in section 224 Employment Rights Act 1996 (ERA) using a 12-week average (but now uses a 52-week average). This is known as the “Calendar Week Method” of calculation. If used, Ms Brazel’s holiday pay would have been higher.

She brought an unlawful deductions claim in the Employment Tribunal for the difference but this was dismissed. The EAT allowed Ms Brazel’s appeal, the Court of Appeal upheld that decision and the Supreme Court has upheld that decision.

What is the correct holiday entitlement and holiday pay for part-year workers?

Workers are entitled to 5.6 weeks’ minimum statutory holiday entitlement each year, regardless of whether they work the entire year or only part of it.

The calculation of their holiday pay is based on averaging their pay over the previous 52 weeks they worked. Any weeks they did not receive pay are not counted, so employers may have to go further back to ensure they identify a full 52-week period of paid work (going back up to a maximum of 104 weeks).

The Supreme Court rejected the previously widely accepted practice of paying 12.07% of holiday pay per hour worked. It also rejected other suggestions made by the Harpur Trust as to how such workers should receive holiday pay as those suggestions would require complicated calculations and detailed record keeping. The Supreme Court acknowledged that “the Calendar Week Method” calculation might produce more holiday pay for someone working irregular hours part of the year than someone working regular hours for the whole year, but did not consider that to be inconsistent with the law. The Supreme Court did not regard “any slight favouring of workers with a highly atypical work pattern as being so absurd as to justify a wholesale revision of the statutory scheme”. The Supreme Court noted that nothing prevented part-time (or in this case part-year) workers from being treated more favourably than others. Ultimately the wording of the calculation method was drafted by Parliament and it was not for the Harpur Trust or the Court to devise another method.

What are the potential risks for employers?

Employers will need to review and (if necessary) amend their contracts of employment and payroll processes for calculating holiday pay for permanent employees/workers with irregular hours of employment (such as zero hours contracts) as well as any “part year” employee/worker, even if their hours are regular but, say, they work term time only. Employers will need to consider how to approach contract wording and payment going forward (both as to how payment is made and whether holiday is specified to be taken at particular times) as well as potential claims for previous underpayments.

If employers continue with the previous Harpur v Brazel method of paying 12.07% holiday pay per hour worked for this type of worker, they are unlikely to comply with the “Calendar Week Method” calculation (although the new 52-week period is likely to achieve a fairer amount of holiday pay), and employers could face claims of unlawful deductions from wages.

Some employers could face back claims of a “series” of unlawful deductions from wages, which could go back up to two years. As a result of the Court of Appeal decision in Smith v Pimlico Plumbers Ltd earlier this year, employers could also have difficulties defending a “series” of unlawful deductions claim on the basis that the “series” of underpayment of holiday pay has been broken by a gap of more than 3 months. In that case, the Court of Appeal expressed the “strong provisional view” that the 3-month gap rule was not correct.

Strategically employers may also want to review whether such workers should be given permanent contracts, depending on how key that individual is for part of a year’s work.

For employers engaging permanent “part-year” workers (whether term-time only or with zero hours/irregular hours contracts) we can help with revising contractual wording, review any exposure to potential claims and advise on how this should be best approached, as well as communication with full year workers who may feel possible resentment in comparison.

After several years of uncertainty for employers since the EAT’s decision in 2018, the decision of the Supreme Court has now clarified the position in relation to this complex issue and removed uncertainty, albeit at a potential extra cost.