Holiday pay for part-year workers on permanent contracts is higher than we (ACAS) thought

Workers in Great Britain have a right to a minimum 5.6 weeks’ (28 days) annual leave. Workers are entitled to be paid at the rate of a week’s pay in respect of each week of leave. For workers without normal hours, a week’s pay is taken to be the worker’s average weekly pay in the 12 weeks before the holiday is taken, excluding any weeks in which no remuneration was payable.

ACAS had recommended an approach for calculating holiday entitlement for workers with irregular hours and pay, based on an annual entitlement of 12.07% of the actual hours worked. This accrual rate derives from the fact that the standard working year is 46.4 weeks (that is, 52 weeks less the statutory 5.6 weeks holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks.

In this case, Mrs Brazel was a visiting music teacher at a school run by the Harpur Trust. She was employed under a permanent contract on a zero-hours basis. The Trust was not obliged to provide a fixed amount of hours and she was only paid for the hours worked. Mrs Brazel mainly worked during term-time (like other teachers at the school) and her working year therefore worked out at 32 to 35 weeks per year. Under her contract, she was entitled to 5.6 weeks’ leave per year. The Trust calculated Mrs Brazel’s earnings at the end of each term and paid her one third of her annualised pay capped at 12.07%. Mrs Brazel argued that this calculation is incorrect and that she was underpaid, because applying the statutory method of calculation based on her average earnings over the preceding 12 weeks, she would have received holiday pay of around 17.5% of her earnings for the term.

The Court of Appeal confirmed that Mrs Brazel was entitled to 5.6 weeks’ leave under statute although this was not a live issue it had to consider. In relation to her holiday pay, despite her only working for part of the year, it held that the pro-rating principle did not apply – there was no law which required pro-rating of holiday pay for part-year workers. Accordingly, rather than applying the 12.07% cap, her holiday pay should be calculated taking her 12-week average pay and multiplying it by 5.6.

The Court of Appeal acknowledged that in extreme cases this would produce unusual results. For example, an exam invigilator employed under a permanent contract but only working one week a year for which he was paid £1,000, would be entitled to 5.6 weeks’ (notional) leave for which he would receive £5,600 (week’s pay of £1,000 x 5.6). By contrast, if the 12.07% cap was used, he would be entitled to holiday pay of £120.70 for the year (week’s pay of £1,000 x 12.07%). The judge was not persuaded that applying the former calculation was obviously unfair since it would be unusual for those who worked only a few weeks a year to be on a permanent contract. He commented that general rules do sometimes produce anomalies.

It is now clear that holiday pay in cases of permanent part-year workers should be calculated by assessing a week’s pay according to the statutory formula and multiplying it by 5.6. Employers who currently use the 12.07% approach to pay holiday to their zero-hours staff with permanent contracts should analyse their potential exposure and consider their options. The case also has the potential to pave the way for casual workers not employed on permanent contracts to seek to run the same argument that their holiday pay should not be subject to the 12.07% cap.