HOT TOPIC
12.07% of the worker’s earnings is paid as an additional payment for holiday pay, is commonly used across many organisations and most of them are possibly still using it now. This is not compliant. Brazel argued that legislation (The Working Time Regulations 1998, or WTR) stipulates workers’ holiday pay should be calculated based on the average weekly pay paid in the 12 weeks preceding their holidays, regardless of their working pattern or the number of hours they work. If someone works fewer hours or weeks in a year, this doesn’t mean they’re entitled to anything below this. The 12.07% rate is derived from the fact that workers are entitled to 5.6 weeks’ holiday per year, which is then divided by 46.4 (52 weeks – 5.6 weeks). The 5.6 weeks are excluded from the calculation as workers wouldn’t be working in those 5.6 weeks, to accrue annual leave. The Trust had opted to use this method as it was a simple way to calculate holiday pay that was due, but Brazel found the 12.07% calculation negatively impacted the amount of holiday pay she received. As she disagreed with the new calculation method, Brazel took a complaint to the employment tribunal (ET) in 2015. She asserted she was disadvantaged by this amendment and that her entitlement should continue to be calculated based on the calendar week method. The Trust argued she worked fewer weeks in a year than other staff, so it was only right that her entitlement was reduced accordingly. Initially, the ET dismissed her claim, as they found the school had correctly calculated her holiday pay by applying the pro-rating principle, but Brazel took the case to the employment appeal tribunal, who then determined she was right. This was because Section 224 of the Employment Rights Act ERA 1996 provides a prescribed method of calculating pay for irregular workers: the calendar week method based on a 12-week reference period. Harpur Trust subsequently appealed the decision to the Court of Appeal. The Trust argued the calendar week method was treating its full-time workers unjustly, because workers who worked fewer weeks would be entitled to more annual leave in some scenarios. The Court of Appeal ruled that at least 5.6 weeks of holiday must be given to all workers, even if they only worked for a matter of weeks per year. The WTR are silent on the notion of a pro-rata
reduction for different working patterns, and pro-rata calculations should only be carried out upon termination of contract. Harpur Trust finally appealed this ruling to the Supreme Court. The final say After much anticipation and a drawn-out wait, the Supreme Court’s decision was delivered on 20 July 2022. This finally provided concrete confirmation of the correct method to use when calculating holiday pay. The calendar week method should be used, and any other percentage- based method should not. The judgment confirmed, ‘The Supreme Court unanimously dismisses the Harpur Trust’s appeal’. It also stated, ‘The Court of Appeal was correct to hold that the Calendar Week Method represents the correct implementation of the WTR and that this is fully compliant with EU law’. The main argument used by Harpur Trust in the case was that the calendar week method wasn’t fair on other staff. Other staff could be entitled to less holiday in a year than a part-year worker, even if they worked more weeks in the year. For example, an individual who worked only one week in a year but had a contract for the duration of a whole year, would be entitled to the full 5.6 weeks. The judgment acknowledged Harpur Trust’s claim that it was, ‘Absurd for the legislature to allow part-year workers to obtain the right to an amount of leave which is disproportionate in relation to that to which other workers are entitled’, before dismissing the claim, stating: ‘We do not regard any slight favouring of workers with a highly atypical work pattern as being so absurd as to justify the wholesale revision of the statutory scheme which Harpur Trust’s alternative methods require. Even if the proper construction of the WTR results in Mrs Brazel being entitled to a greater amount of leave than she might be strictly entitled to under the WTD and to a proportionately greater leave requirement than full-time workers, such a construction is compliant with the WTD.’ The judgment has confirmed the calculation method written in law must be followed in all circumstances. Just because someone works fewer weeks in the year while remaining employed for the whole year doesn’t mean their entitlement can be pro-rated. Only the calendar week method should be used, and any percentage-based
methods abandoned. This is blatantly evident in the Supreme Court ruling, ‘There is nothing in the WTR which indicates that the regulations should be construed so as to permit the alternative methods of calculating pay that have been adopted or proposed by the Harpur Trust and aspects of their proposed methods are directly contrary to what is required by the statutory wording and the WTR.’ The alternative methods suggested by the Trust (and dismissed by the Supreme Court) were: ● the percentage method: this involves adding all the hours or days worked and applying the hourly or daily rate of pay to 12.07% of the total amount of those hours or days. The same amount can be achieved by applying the 12.07% to the pay received over the course of the annual leave year. The percentage method doesn’t include the requirement to calculate the week’s pay in accordance with Section 224 of the ERA 1996 ● the worked year method: this calculates the proportion of the year that is worked, compared to the working year of 46.4 weeks. This considers weeks the workers actually work (and excludes the 5.6 weeks’ worth of holiday they’re entitled to). The average week’s pay is then calculated in accordance with the ERA 1996, but the worker’s entitlement over the year doesn’t amount to the full 5.6 weeks’ worth of holiday a full-year worker would be entitled to. If you’re aware your organisation has been using an incorrect method for calculating annual leave and entitlement, it would be advisable to conduct reviews in this area, and take steps to ensure you’re compliant with holiday entitlement and pay legislation. This is particularly pertinent, given that the upcoming single enforcement body will potentially see compliance with holiday pay regulations fall within its remit. The press summary can be located here: https://rb.gy/ntv0aj The judgment can be found here: https://rb.gy/rqeeyn. The CIPP is offering a one-hour webinar to provide guidance on how to ensure compliance with the latest holiday pay legislation for workers who don’t work normal hours. You can sign up here: https://rb.gy/pi8kte. n
*Please note that Northern Ireland still uses a 12-week reference period for the purposes of calculating holiday pay.
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| Professional in Payroll, Pensions and Reward |
Issue 83 | September 2022
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