Holiday pay for atypical workers - the next step...

Last year we reported on the change in how holiday pay should be calculated for part year, permanent workers. In the Harpur Trust v Brazel case, the Supreme Court ruled that holiday entitlement for workers who only work part of the year (such as term-time and casual workers) should not be pro-rated so that it is proportionate to the amount of work they perform each year.

In other words, part-year workers under a permanent contract are entitled to 5.6 weeks of statutory leave, regardless of how much they actually work in any given year.

In addition, the Supreme Court stated that these type of workers are entitled to the holiday pay calculated on a similar basis as colleagues working all year. The 12.07% calculation that had been generally used for holiday pay was incorrect, and employers instead should be calculating the average weekly pay in the 52-week period immediately prior to the period of holiday taken, ignoring weeks with no pay.

As a result of this decision, in many cases, part-year workers are entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year, and proportionally greater holiday entitlement than full time workers. It has also left employers with numerous practical issues, including when it comes to calculating holiday entitlement for workers with varying hours of work.

The Government has therefore launched a consultation to address what most see as an unfair advantage, and unclear and complex holiday system, for part year workers following the Harpur Trust decision.

The proposal

The consultation proposes that holiday pay and entitlement received by workers is proportionate to the time they spend working.  The current proposal includes changes to the calculation of holiday entitlement, as follows:

1. Introducing a 52 week reference period for holiday entitlement for part-year workers, and those who work irregular hours, based on the proportion of time spent working over the previous 52 weeks, including weeks in which no work was done.
2. Holiday entitlement would be calculated in hours at the start of the leave year as 12.07% of the hours worked in the previous 52 weeks
3. An accrual system would apply in the first year of employment – at the end of each month the worker would accrue 12.07% of the hours worked in that month
4. For agency workers, as a 52 week reference period is impractical, agency workers would accrue leave each month at the 12.07% rate, and would not accrue leave in between assignments. Holiday can be taken during an assignment, or at the end (or paid in lieu)
5. Where a worker has irregular hours, a day’s holiday would be based on a ‘flat average day’: the average length of a day for the worker based on the reference period used to calculate their holiday entitlement

The consultation paper acknowledges that holiday pay is already calculated by using a 52 week reference period, although weeks in which no remuneration was earned are ignored. If the proposals above are adopted as they are, it would in some cases mean using different 52 week reference periods for calculating holiday entitlement (which would include weeks with no pay) and holiday pay (which must exclude weeks with no pay).

Timing

The consultation is open until 9 March 2023. If you would like to do some further reading on the topic, and/or contribute to the consultation, it can be found here.