A common formula for calculating pro-rata holiday pay has been ruled as incorrect by the Court of Appeal, meaning that employers must review their methods and contracts.
UNISON intervened in the case, which has wide-ranging impact on British businesses that employ part-year workers.
The Court of Appeal last week ruled that a teacher's holiday pay had been incorrectly calculated, clarifying legislation on part-year workers' holiday entitlement.
The upheld ruling confirmed that Lesley Brazel, a visiting music teacher at Bedford Girls' School, should receive the statutory 5.6 weeks' holiday pay, calculated by averaging her earnings over 12 weeks.
UNISON intervened in the appeal – despite Brazel not being a member of the trade union. UNISON said that it was concerned about the appeal's effect on "hundreds of thousands of part-time workers and those working on irregular hours".
The Harpur Trust, which runs Bedford Girls' School, calculated Brazel's holiday entitlement by dividing the number of working weeks by the statutory 5.6 weeks' holiday entitlement.
This was the method recommended by the Advisory, Conciliation and Arbitration Service (Acas).
Brazel argued that the Working Time Directive (WTD) says holiday pay must be calculated by averaging weekly pay over 12 weeks before the calculation date and multiplying it by 5.6.
She took her complaint to an employment tribunal in 2015 but was dismissed in 2017 on the grounds that the pro-rated calculation (12.07% of average pay) gave her a proportionately sized entitlement. Brazel appealed to the Employment Appeal Tribunal, which upheld her appeal.
The Harpur Trust challenged Brazel's appeal at the Court of Appeal, arguing that their method was within the law and common practice. However, the Court dismissed the Trust's appeal.
The WTD, the judge noted, does not specify a different formula for employees who don't work a full year.
Harpur Trust v Brazel & UNISON has clarified the legal position on part-year workers' holiday entitlement.
Vagueness in regulation had left this up for debate, meaning that Brazel, and many others, had previously been paid based on a pro-rata formula.
What does this mean for employers?
The decision means that employees who work only part of the year must get the statutory 5.6 weeks' holiday.
This is most relevant to businesses who employ part-year staff – workers on contracts which continue between active assignments. Academics and non-salaried teaching staff will often fall under this category.
In future, holiday pay must be calculated by taking an average week's pay, as determined by averaging the previous 12 weeks' pay, and multiplying it by 5.6.
So, for example, if an employee's total 12 weeks' previous pay comes to £3,000, the calculation will look like this:
(£3,000 / 12) * 5.6 = £1,400 total holiday pay for the year
Make sure you're within the law
If your business has been using another method (such as dividing the number of working weeks by the statutory holiday entitlement) you have to change how things are done or risk being challenged by affected workers.
A review of employee contracts should make sure that part-time and irregular workers are receiving their legal entitlement of paid holiday. Employers will also need to consider whether to make proactive back payments to workers who have been subject to the 'wrong' method of holiday calculation; or to see whether claims are made.
These reviews can be time consuming and tricky, as employment regulations are ever-changing and complex – and decisions may come with unforeseen consequences. It is always advisable to seek legal advice before making any changes to employment contracts.
The Employment Law Team at Pinney Talfourd is recommended by Legal 500 and provide expert legal advice to employers on contracts and the many changes in the law.
Please contact our Employment Law Team if you require further advice on how this new ruling may affect your business and its workers.
If you find that you are regularly updating your contracts and reacting to issues with employees, Pinney Talfourd offers an Employer Retainer Scheme which will help your HR Team to work more proactively. The scheme provides peace of mind and unlimited access to our expert employment team as new legislation is introduced and employment contracts need amending, such as holiday pay, sickness and grievance procedures.
In addition, clients will also benefit from discounted rates for advice outside of the terms and conditions of the retainer scheme. Find out more here.