New ruling sees ‘part-year’ workers’ holiday pay no longer pro-rated

Do you employ ‘part-year’ staff? If you’ve not heard of the term before, it means a permanent employee who only works for part of the year. This most often applies to people who work in schools as ‘term-time only’ employees – such as cleaners, caretakers, or music teachers – or those that work in nurseries or after-school/ holiday clubs and seasonal employees such part-year wardens, greenkeepers, gardening staff etc.

Last month, the Court of Appeal ruled that part-year employees should not have their holiday entitlement pro-rated to take into account the fact that they do not work the full year.

How did the ruling come about?

The relevant Court of Appeal case is Harper Trust v Brazel, which involved Lesley Brazel, a visiting music teacher at Bedford Girls School, who only worked during term-time.

Ms Brazel brought a claim that she had been underpaid on her holiday pay because it was being unfairly pro-rated by the school, on account of her term-time only working.

They were using a method of calculation approved by Acas whereby they were paying her 12.07% of the hours she actually worked. As an employee working irregular hours, the statutory calculation would usually be based on an average of her last 12 weeks worked.

Her employer argued that it was necessary to pro-rata her entitlement by using this method of calculation as otherwise a part-year employee would receive a greater proportion of holiday in comparison to a full-year worker.

Why did the Court of Appeal rule in her favour?

The Court of Appeal held that there was nothing in the legislation which justified pro-rating the holiday for a part-year employee. It held that, although the law is designed to prevent less favourable treatment to part-time employees, it doesn’t necessarily follow that they can’t receive more favourable treatment.

Therefore, part-year employees should still receive 5.6 weeks’ holiday a year and it is not acceptable to pro-rata their entitlement in any way to reflect the fact that they are only working for part of the year.  Further, if they are irregular hours employees, their holiday pay should be calculated on the date they take holiday, by looking back at the previous 12 weeks’ wages.

This means that the guidance previously given by Acas to calculate holiday pay by paying 12.07% of wages earned is no longer appropriate, as this would not pay the full holiday entitlement.

The Court of Appeal has made it clear that these principles apply regardless of whether the part-year employee is working regular or irregular hours.

Where does that leave employers and business owners?  

Following the Court of Appeal decision, despite part-year workers only working part of the year, there is no justification for pro-rating their holiday to reflect this.

Part-year employees must receive 5.6 weeks’ holiday each year and employers must not pay them a 12.07% calculation of wages as holiday pay or use any other method to pro-rata their entitlement.

Instead, if they work regular hours, they would receive 5.6 weeks of normal pay a year as holiday pay and if they work irregular hours, the employer must look back over the previous 12 weeks at the time that holiday is taken to calculate the holiday pay.  From April next year, the 12-week period will be extended to 52 weeks (or the full period of their employment if they have not been employed for 52 weeks).

So, what can employers do?

Right now, we don’t know if this decision will be appealed to the Supreme Court. But it’s important that, as an employer, you assess the impact this will mean for your business. Here’s what we recommend:

1. Get a handle on who, within your business, is likely to be affected by this decision. Remember, at the moment this only applies to permanent employees although this could be challenged in the future. Also, keep in mind that sometimes those who started out as casual workers can acquire permanent employment status over time.
2. Consider whether you’re likely to be exposed financially from this – i.e. have you been pro-rating holidays for part-year employees and by how much? Remember this judgment only applies to the statutory 5.6 weeks holiday and not any additional holiday entitlement you may give your employees.
3. There are various potential ways to proceed, but we set out the main alternative options below for you to consider and decide which is best for your business:

• Do nothing and wait to see if there is an appeal but assess your potential exposure and reserve funds to cover potential claims of underpayment.
• Increase contractual holiday entitlement in line with the judgement.
• Increase entitlement but communicate that this is not a permanent contractual entitlement, just an additional entitlement to comply with prevailing case law, but which could be withdrawn should there be a change in the law. This would have to be carefully worded.

 

Getting clarity on your contracts with Citation

If you want to discuss how this ruling may affect your business, or you need help drafting new contract clauses to comply with this ruling, Citation is here and in your corner.

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