Dealing with holidays for those who work irregular hours, for example bank employees, term time only workers, or employees on zero hour contracts can be a tricky issue for employers.
Many employers calculate holiday pay for term-time workers by following the ACAS guidance which states that for casual workers it is often easiest to calculate holiday entitlement that accrues as hours are worked. The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year.
The simple approach of dealing with a pro rata calculation and paying 12.07% annualised hours as holiday or increasing hourly rates by 12.07% to include an element of holiday pay, also known as ‘rolled up holiday pay’, is no longer the accepted approach. The recent EAT decision in Brazel v The Harper Trust has demonstrated that such an approach will leave employers vulnerable to claims for unlawful deduction of wages.
The case concerned a music teacher who worked during term-time on a zero-hour contract, working between 32 and 35 weeks per year. Mrs Brazel’s contract of employment entitled her to 5.6 weeks of annual leave. She was required to take this holiday entitlement outside of the school’s term time.
The Trust calculated her holiday pay using the calculation of 12.07% of hours worked to work out her holiday leave entitlement and paid this as rolled up holiday pay.
Mrs Brazel brought a claim for unlawful deductions claiming that she was being underpaid holiday pay as she was a part time worker. In the Employment Tribunal, the Trust successfully argued that they had taken the correct approach, because if it were to have taken a different approach, and not calculated on a pro-rata basis, Mrs Brazel would receive a ‘windfall’. The Employment Tribunal agreed that if the Trust were to have taken a different approach it would result in Mrs Brazel receiving around 17.5% annualised hours as holiday pay, which was more than a full time employee. Her claim was therefore dismissed.
Mrs Brazel appealed this decision and the EAT found in her favour. The EAT found that there was no requirement to pro-rate holiday entitlement in order to prevent full time employees being treated less favourably. The EAT held that the correct approach in calculating holiday pay is to apply section 224 Employment Rights Act 1996 by working out the employee’s normal week’s pay based on the average pay received in the last 12 weeks worked, ignoring non-term time.
Although the EAT did recognise that such an approach could produce windfalls for part-time employees, it found that there is no provision within the Working Time Regulations that would enable an employer to calculate holiday pay to avoid full-time workers being treated less favourably and receiving a sum proportionately less.
The effect of this case is that, if you have members of staff who work irregular hours, they should be paid a sum calculated on the average of the previous 12 working weeks’ pay for their holiday entitlement.
Holiday pay for those with irregular working patterns can be a difficult issue. If not calculated correctly, employers are vulnerable to claims. Should you have any concerns, please do not hesitate to contact our Employment Team.