HOT TOPIC
Mathew Akrigg ACIPP, policy and research officer, the CIPP , discusses the consultation which proposes potential changes to the method of calculating holiday entitlement for part-year workers and irregular hours workers
H oliday pay has long been a sticking point for payroll professionals. It can get complicated, especially when you introduce part-year or irregular hours workers, vast amounts of case law and an ever-changing labour market landscape. If you aren’t aware of the latest updates, firstly, where have you been? But secondly, here is, hopefully, a quick run-down of what you need to know. Harpur Trust v Brazel In July of 2022, the Supreme Court handed down a judgment on the Harpur Trust v Brazel case. Harpur Trust, the employer, paid Brazel, an employed music teacher, her holiday pay as 12.07% of hours in the previous term. Prior to 2011, they used a correct calendar method of calculation, but changed process based on guidance issued by the Advisory, Conciliation and Arbitration Service (Acas) at the time. This case went to the employment tribunal, Employment Appeal Tribunal and Court of Appeal, before finally ending up at the Supreme Court. The Supreme Court clarified the position of law and this case is now considered case law, where only legislative changes, or further Supreme Court decisions, can change how the lower courts will rule on issues such as this in the future. The decision provides us with two key point to consider. The first is that the calendar week method, using a 52-week reference period (up to 104 weeks when discounting weeks not worked) is the compliant method for calculating pay. The conclusion of the
seemingly enough to justify consulting on a revision. But this is a major simplification; there are a few things in the consultation that require a deeper dive. Firstly, the reference period: this is set at 52 weeks to mirror the holiday pay reference period; however, weeks that aren’t worked should be included. This is done to pro-rate the holiday based on actual hours worked in the reference period but means the period for pay and entitlement are highly unlikely to match up. Entitlement calculations As a method of calculation, the government is proposing that employers use: Hours worked in the reference period * 12.07% = annual holiday entitlement in hours This is a suggested simplification of ‘(hours in the reference period/46.4) * 5.6’. At this point, I can almost hear payroll professionals in jubilation saying, “The simple and easy 12.07% calculation is back”, but wait. It’s extremely important to stress that this proposed change applies only to the calculation of entitlement; the Supreme Court verdict on using the 52-week calendar method for pay is the correct interpretation of the law. It can be easy to conflate the pay and entitlement calculation, but they’re separate and will remain separate. And this is driven home with the first question about the proposals in
judgment states: “We therefore conclude that the Court of Appeal was correct to hold that the calendar week method represents the correct implementation of the Working Time Regulations.” This means the 12.07% method for calculating pay shouldn’t be used. Additionally, we now need to look at how entitlement works for part-year or irregular hours workers. The Supreme Court’s press release stated: “A slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme which the Harpur Trust’s alternative methods require.” This indicates that the 12.07% method naturally pro-rates the holiday pay and entitlement based on the hours being worked. This isn’t something that’s compliant with the law currently. However, this can lead to situations where a worker on a permanent contract working one week a year, would receive 5.6 weeks of holiday pay. A change on the horizon? This leads us into the recent consultation released by the Department for Business, Energy and Industrial Strategy (BEIS). The consultation puts forward proposals to change how entitlement is calculated, using a 52-week reference period to determine how much holiday an individual gets. Essentially allowing the pro-rating of holiday entitlement, or a ‘wholesale revision of the statutory scheme’. BEIS estimates that between 320,000 and 500,000 individuals are affected, receiving more holiday entitlement,
| Professional in Payroll, Pensions and Reward | March 2023 | Issue 88 54
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