June

Calculating holiday pay for employees with no normal working hours: Brazel v Harpur Trust

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The recent case of Brazel v Harpur Trust saw a new ruling on how holiday pay is calculated for employees who work irregular hours through a payroll year.

In this case, the Employment Appeal Tribunal (EAT) ruled that holiday pay for term-time workers should be based on a reference period of the 12 weeks preceding the holiday and not on the standard 12.07% of annual pay.

Moving forward, this means that holiday pay may have to be calculated differently so as best to suit the working pattern of individual employees. This can apply to casual employees, zero-hour contracts or part-time employees who work variable hours.

In light of this ruling, we bring this summary of the case and how it will affect holiday pay for those on zero hour contracts moving forwards.

Background law

The Working Time Regulations 1998 state that workers are entitled to a minimum of 5.6 weeks’ paid annual leave. It can be difficult applying this to workers that don’t keep normal hours, and so usually they accrue their paid holiday entitlement at a rate of 12.07% of their total hours worked.

The Working Time Regulations also state that holiday pay is equal to a week’s pay for each week of leave taken (as per the Employment Rights Act 1996).

The Employment Rights Act also stipulates that a week’s pay should be the average weekly pay for the 12 weeks preceding leave.

In a further piece of relevant legislation, the Part-time Worker’s Regulations main principle is that part-time workers cannot be treated less favourably than full-time workers.

The case

In this case, Mrs Brazel was a teacher entitled to 5.6 week’s paid annual leave, which she was required to take during school holidays.

Her holiday pay was calculated at 12.07% of the hours she worked in a term, and paid in 3 instalments at the end of each term.

Her claim stated that her holiday pay should instead have met the requirements of the Employment Rights Act, and that it should be based on the 12 weeks prior to her leave was taken. She made a claim for unlawful deductions from wages, as she would’ve received a higher percentage of earnings as holiday pay based on this calculation.

The ruling

The Employment Tribunal initially rejected Mrs Brazel’s claim, ruling that holiday pay for part-time workers should be pro-rated and capped at 12.07% of their annualised hours if they worked fewer than the standard working year of 46.4 weeks.

The Employment Appeal Tribunal (EAT) disagreed, however, and found that the Employment Rights Act gave a clear way of calculating her due holiday pay. They recognised that this favoured workers that don’t have standard working years, but found that there was no legal requirement to pro-rate holiday part-time workers’ holiday pay to ensure they weren’t treated any less favourably than full-time workers.

The EAT also found the Working Time Regulations clearly point to the Employment Rights Act in regards to how holiday pay is calculated. Therefore, Mrs Brazel’s claim was valid and the standard practice of using 12.07% scheme was not correct.

This case was because there is no opposing law to the Part-time Worker’s Regulations main principle of not treating part-time workers fairly i.e. there’s no law against treating full-time employees less fairly than part-time employees.

This meant that the Employment Tribunal’s initial verdict had no basis and that the 12-week averaging scheme should be adhered to. As a result, individuals who work 32 weeks a year (such as Mrs Brazel) should have their holiday pay calculated at 17.5% rather than 12.07%.

What does it mean?

This ruling means that employers must evaluate whether their holiday pay calculations need to be amended. Failure to do so could result in them facing claims for unlawful deductions from wages.

As an employer, you’ll have to work out the average pay over the 12-week period preceding paid annual leave being taken. This may result in part-time employees being paid more for their holiday pay.

Staying on top of holiday pay

Even before this legislative change, calculating holiday pay was one of the most confusing parts of running a payroll. And processing holiday requests and amends can be

To help business adapt to these changes, we have the IRIS holiday pay module. This is designed to simplify and streamline holiday pay, allowing you to choose which pay elements you include in your holiday pay calculations and set the default holiday entitlement.

Crucially, it also allows you to define a monthly divisors for the 12 week average weekly earnings calculation for monthly paid workers, and choose which periods you want to exclude from this calculation.

Alternatively, if you’re feeling a little overwhelmed by the ongoing legal changes to payroll (and who can blame you) you can consider our Managed Payroll Outsourcing service. We offer a complete outsourcing or a bespoke option, so if you want to keep the majority of your payroll under your control but want a helping hand with holiday calculation, we can sort that for you. Get in touch with us to learn more.

To learn more about Holiday Pay in 2018, download our free guide – available here: https://www.iris.co.uk/campaigns-sme/downloads/nb-holiday-pay-wp

Posted by
Andrew Woodhouse
5 June 2018
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