Introduction
Calculating holiday pay for employees with irregular hours, such as those on zero-hour contracts or term-time contracts, can be a complex task. A landmark legal case in the UK, known as Harpur Trust vs Brazel, has shed light on this issue and led to important changes in how holiday pay should be calculated for these workers, creating significant issues for employers with regards to the operationalisation of pay for irregular workers such as term-time and zero hours.
The Harpur Trust vs Brazel Case: An Overview
The Harpur Trust vs Brazel case is a landmark case in the UK that has significantly impacted the calculation of holiday pay for zero-hour contract workers and those working irregular hours.
Mrs. Brazel, a music teacher, was employed by the Harpur Trust on a zero-hours contract. She was engaged to work during term times and did not work full-time or for the whole year. She received holiday periods at three times during the school year. In 2011, the Harpur Trust altered the manner in which it calculated the amount of this holiday pay, which resulted in a less favourable outcome for Mrs. Brazel.
Mrs. Brazel brought proceedings in 2015 before the Employment Tribunal, which decided against her on this issue, as the Trust had followed ACAS guidance and adopted the 12.07% rule for establishing her accrual. She then appealed to the Employment Appeals Tribunal, where she was successful. The case eventually reached the Supreme Court, which ruled in favour of Mrs. Brazel. T
he court confirmed that for workers with irregular hours, holiday pay should be calculated using a reference period to determine their average weekly pay, ignoring any weeks in which they did not work. This is a significant departure from the previous practice of pro-rating holiday pay for such workers. This means that holiday pay for these workers should be calculated using a reference period to determine their average weekly pay, ignoring any weeks in which they did not work.
Whether this case generated issues of fairness with respect to employees who work on a fixed schedule is beyond the scope of this guide. However, criticism has been leveled at the ruling on grounds of disparity of treatment for employees that work full-time and also, that the ruling brings significant operational burden to calculate holiday pay for this category of workers.
This ruling has significant implications for employers, particularly those in sectors such as education and hospitality where it's common to employ staff on zero-hours or term-time contracts. It means that these employers must ensure they are calculating holiday pay correctly for these workers, based on their actual average weekly pay rather than using a fixed percentage.
The case also clarified that holiday entitlement is 5.6 weeks per year and holiday pay should be calculated with reference to average earnings over 52 weeks and not by reference to hours worked. This decision impacts zero-hour workers and others engaged on permanent ‘year-round’ contracts who are only required to work for part of the year.
Step-by-Step Guide to Calculating Holiday Pay for Employees with Irregular Hours
Step 1: Understand the Basics
Every worker, regardless of their contract type, is entitled to a minimum of 5.6 weeks of paid holiday each year according to UK law. However, the calculation of this entitlement can be complex for workers with irregular hours. It's important to understand that the 5.6 weeks of holiday is a statutory minimum and some workers may be entitled to more depending on their contract.
Step 2: Establish the Reference Period
The reference period is typically the last 52 weeks in which the worker has worked and earned pay. If the worker hasn't worked for 52 weeks yet, use the total number of weeks they have worked since the start of their employment. This reference period is crucial as it forms the basis for calculating the average weekly pay. It is important to note that those days where the worker has taken paid leave, such as holiday or sick leave, should not be included in the reference period. The reference period should only include weeks where the worker has actually worked and received pay for their work.
Step 3: Calculate Average Weekly Pay
To calculate the holiday pay, you need to determine the worker's average weekly pay. This is done by looking at the reference period you determined in Step 2. Add up the total pay the worker received during the reference period and divide it by the number of weeks in the reference period. This will give you the average weekly pay.
For example, let's say an employee named Anna worked 20 hours one week, 15 hours the next week, and 25 hours the week after that, earning £12 per hour. The total pay for these three weeks would be (20 hours * £12/hour) + (15 hours * £12/hour) + (25 hours * £12/hour) = £720. If these are the only weeks she worked in the reference period, her average weekly pay would be £720 ÷ 3 weeks = £240.
Step 4: Determine the Average Weekly Days
Count the total number of days the worker has worked during the reference period and divide by the number of weeks in the reference period. This will give you the average number of days the worker works in a week. This average weekly days figure is important for calculating holiday entitlement for partial weeks.
For instance, if Anna worked 3 days in the first week, 2 days in the second week, and 4 days in the third week, the total number of days worked would be 3 days + 2 days + 4 days = 9 days. If these are the only weeks she worked in the reference period, her average weekly days would be 9 days ÷ 3 weeks = 3 days.
Step 5: Deduct Used Holiday Entitlement
When the worker takes a week's holiday (based on their average weekly days from Step 4), you need to deduct this from their total annual holiday entitlement of 5.6 weeks. Keep a record of the holiday taken by the worker to ensure you have an accurate count of their remaining holiday entitlement.
For example, if Anna takes a week's holiday, you would deduct one week from her total annual holiday entitlement of 5.6 weeks, leaving her with 4.6 weeks of holiday entitlement remaining.
Step 6: Calculate Holiday Entitlement for Partial Weeks
If the worker requests a holiday for more - or less - than their average weekly days, you need to calculate their equivalent entitlement for this period. To do this, divide the number of days they're requesting by their average number of days worked per week (from Step 4). This will give you the proportion of a week that their requested holiday represents, and thus will enable you to calculate pay accordingly.
For instance, if Anna requests a 4-day holiday, this would equate to 1.33 weeks (4 ÷ 3), because she works an average of 3 days per week.
Step 7: Calculate Pay for Partial Week Holiday
To calculate the worker's pay for their partial week holiday, you need to determine the proportion of the week that their requested holiday represents and then apply this proportion to their average weekly pay, like we did in the step above. Here's another example.
Let's continue with Anna. If she requests a holiday that is less than her average weekly days, say 2 days, we first need to calculate the proportion of the week that these 2 days represent.
To do this, we divide the number of days she's requesting (2 days) by her average number of days worked per week (3 days, as calculated in Step 4). This gives us a proportion of 0.67 of a week of work for Anna. we have established that Anna's workign week, based on the average hours worked is 3 days. If she is requesting 2 days we then apportion 2 days against her average hours in the working week so, 2(days requested) ÷ 3 (average working weekly days). 2 days for Anna is the equivalent of 0.67 of a week.
Next, we apply this proportion to her average weekly pay to calculate her pay for this partial week holiday. We do this by multiplying her average weekly pay (£240, as calculated in Step 3) by the proportion we just calculated (0.67).
So, Anna's holiday pay for her 2-day holiday would be £240 * 0.67 = £160.80.
This means that for her 2-day holiday, Anna would be entitled to £160.80. This calculation ensures that her holiday pay is proportional to the length of her holiday and reflects her average earnings.
Step 8: Update Remaining Holiday Entitlement
After each holiday request, update the worker's remaining holiday entitlement by deducting the holiday they have taken. This ensures you always have an accurate record of the worker's remaining holiday entitlement. It's important to keep this updated so you can accurately calculate pay for future holiday requests.
For example, after Anna takes an additional 4-day holiday (from step 6), you would deduct 1.33 weeks from her remaining holiday entitlement of 4.6 weeks (Anna took a week prior to this bout, so 5.6 - 1 = 4.6), leaving her with 3.27 weeks of holiday entitlement remaining.
Step 9: End of Year Calculation
At the end of the holiday year, calculate the worker's remaining holiday entitlement based on their current average weekly work (from Step 4). Multiply the remaining holiday entitlement in weeks by the average weekly days to get the remaining holiday entitlement in days. This is the amount of holiday the worker can still take before the end of the year.
For instance, if Anna has 3.27 weeks of holiday entitlement remaining at the end of the year, and she works an average of 3 days per week, her remaining holiday entitlement in days would be 3.27 weeks * 3 days/week = 9.81 days.
Final thoughts
Calculating holiday pay for workers with irregular hours has now become, following the Harpur Trust vs Brazel, a complex area that requires careful attention. The government will soon review the outcome of the case and address any imbalance and complexity created by the case, which effectively makes holiday pay for this category of workers a burdensome task.
There are some suggestions underway such as including weeks in which the staff member did not work in the relevant period of the calculation, or even re-instating the 12.07% rule. In any case, because circumstances can vary as pay periods vary among different employers. It's always recommended to seek professional advice when dealing with these matters. For specific cases and further assistance, you can contact us to seek guidance on the matter.