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The Working Time Regulations 1998 (WTR’s) state that workers are entitled to a minimum of 5.6 weeks’ leave per year with part-time workers being entitled to a pro-rated amount of this figure. For example, an employee working full time would be entitled to 28 days per year (5 days x 5.6 = 28) whereas a part-time employee working say 3 days per week, would be entitled to 16.8 days per year (3 days x 5.6 = 16.8 days).

The above is clearly a straightforward calculation, however the situation becomes more complicated for workers who do not have ‘normal working hours’. Under the Employment Rights Act 1996 (ERA) if an employee works irregular hours, their holiday pay should be calculated using an average of their pay over the last 12 weeks. On the basis that the 5.6 weeks leave entitlement amounts to 12.07% of a worker’s hours (12.07% reached by dividing 5.6 by 46.4 (total number of weeks in a year less 5.6 weeks holiday), employers have generally calculated holiday pay as 12.07% of pay for each hour worked (i.e. the assumption was that the calculation for both the amount of holidays and holiday pay, would be the same). The recent case of The Harpur Trust v Brazel however, shows that the same approach does not work for both…

Ms Brazel was employed under a zero-hours contract as a part-time teacher for a school and did not work every week.  Her contract stated that she was entitled to a full-time equivalent of 5.6 weeks annual leave, to be taken during school holidays.

Her employers calculated her holiday pay at 12.07% of the hours worked in a term, which would be paid over three instalments at the end of each term. Ms Brazel however, argued that her holiday pay should have been calculated using her average weekly earnings for the 12 week period before her holiday was taken.

The Employment Tribunal (ET) rejected Ms Brazel’s claim, finding that the interpretation of the WTR’s could be that holiday pay should be based on 12.07% of hours worked when a worker works less than 46.4 weeks.  Ms Brazel subsequently appealed to the Employment Appeal Tribunal (EAT) however, which held that the 12 week average calculation should be used instead, as per the WTR’s and ERA.

Next the School appealed to the Employment Appeals Tribunal (EAT), who disagreed with the ET’s findings and stated that a 12 week average calculation should be made in accordance with the WTR’s and ERA.

Subsequently upon further appeal, the Court of Appeal (CA) agreed with the decision made by the EAT and stated that it was incorrect to read words into the WTR’s as the ET had done, which would result in term-time only workers having their holiday pay capped at 12.07% of annualised hours.  Adding the pro-rata requirement/an accrual system would be an entirely different system that was not required by EU law – the WTR’s only require the calculation of a week’s pay and thereafter multiplying this week’s pay by 5.6.  The CA went on to summarise the legal position as follows: “The WTR do not provide for the kind of pro-rating for which the (school) argues and which underlies the application of the 12.07% formula in the case of a part-year worker.  The exercise required by regulation 16 and the incorporated provisions of the 1996 Act is straightforward and should be followed.”

In summary, it is likely that not only teachers will be affected by this judgment – zero-hours contract workers not working a full year should have their holidays calculated using the 12 week average calculation and not the 12.07% formula, which will no doubt be administratively a lot more difficult and time-consuming for employers! 

Employers would be best advised to review their holiday pay calculation procedures and also to be wary of the potential for back-pay claims.

Please contact Katharine Kelly on 0151 239 1079 or should you have any queries regarding the calculation of holiday pay.