In the recent matter of Brazel v. The Harpur Trust, the Court of Appeal has upheld an earlier Employment Appeal Tribunal (EAT) ruling that when calculating holiday pay for staff working irregular hours employers should use the 12-week reference period dictated by the Working Time Regulations (WTR), rather than ACAS’s recommended 12.07% of annual pay. The Court of Appeal’s ruling is available here.
The WTR, following the EU Working Time Directive, provides for 5.6 weeks of paid holiday every year. Workers on irregular hours contracts should, according to that model, have their holiday pay calculated as the average of the hours they worked in the 12 weeks prior to the first day of leave, excluding any weeks in which they earned nothing. As of April 2020, this will change to being an average of the prior 52 weeks.
However, ACAS, in its booklet Holidays and holiday pay states that holiday pay for such workers should be 12.07% of annualised hours. In a rather complicated calculation it subtracts the WTR’s mandatory 5.6 weeks from the total 52 weeks in a year, to arrive at a basic working year of 46.4 weeks. It argues that this subtraction is on the grounds that for those 5.6 weeks the worker is not at work accruing annual leave. It then works out what 5.6 is as a percentage of 46.4 – 12.07%. Crucially, this has the effect of capping holiday pay at 12.07% of annual earnings, which in Mrs Brazel’s case was a problem.
Mrs Brazel was a part-time music teacher on a zero hours contract with The Harpur Trust. Her work fluctuated and was mostly confined to term times. She received holiday pay three times each year, at the end of each term, calculated as 12.07% of the actual hours she had worked that term. She, however, argued that this disadvantaged her because under the WTR system she could receive some 17.5% of her earnings for the term, which was considerably more. She brought her case to a Tribunal, where it was rejected on the grounds that this method of calculation would disadvantage year-round workers who worked all year, rather than just in term time.
The EAT, however, overturned that, favouring the WTR system over ACAS, and the Court of Appeal has now upheld that decision. The Court agreed that although it might seem surprising that part-year workers were entitled to a higher proportion of their annual income as holiday pay, it could not see that this was fundamentally unfair or unprincipled.
Clearly employers of workers with irregular hours should, until April 2020, calculate holiday pay as an average of the 12 weeks prior to the first day of holiday, excluding any periods of leave. Employers who have been using the ACAS system previously and who may, as a result, have paid workers less than the WTR mandates may need to look at whether adjustments are necessary. To do otherwise, and to continue with the ACAS system, opens the door to claims for unfair deductions. But at present this decision concerns only those workers on contracts that, whatever the specifics of the hours or lack of them, retain employees year-round. Staff on zero hours contracts who are not retained between periods of work are not covered.
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