So how do you calculate holiday entitlement and pay for employees on zero-hours contracts? Is the approach different for casual workers engaged for discrete assignments only? What about part-time workers?
Facts
Mrs Brazel was a music teacher who visited a school run by The Harpur Trust to provide lessons to pupils. She was employed on a permanent contract and was paid an agreed hourly rate for the hours she had worked in the previous month. She only attended the school when she was required to provide lessons, so she had no set number of working hours, and her hours were dependent on how many pupils were learning to play an instrument that term. Mrs Brazel did not work for the Trust during the school holidays, and it was agreed that she take her annual leave during this time as the children did not need teaching.
The Trust paid Mrs Brazel holiday pay three times a year, once at the end of each term. They worked it out by calculating Mrs Brazel’s earnings at the end of each school term and paying her 12.07% of those earnings for that term.
Mrs Brazel argued that this figure actually meant that she was receiving lower holiday pay than was permitted by the Working Time Regulations. She argued that instead holiday pay should be calculated by working out her average weekly pay for the 12 weeks before the holiday; multiplying it by 5.6 (the maximum amount of holiday anyone is entitled to under statue); and paying one third to reflect the three-time-per-year holiday pay arrangement.
The Trust argued that Mrs Brazel’s suggested method of calculation would equate to 17.5% of annual earnings and instead holidays should be pro-rated as she worked fewer weeks than the standard working year. Using Mrs Brazel’s calculations would mean that she would be paid proportionally more in respect of annual leave than employees who worked full time.
The Trust gave the following example showing how disproportionate Mrs Brazel’s method of calculating holiday pay could be:
“[Think about a] school cricket coach, who would only work for one term…for which he earned, say, £1,000, and who would then be entitled to 5.6 weeks annual leave, for which they would receive £5,600 [during his annual leave]”.
Judgment
Despite the Trust’s compelling example, Judge Underhill disagreed with the Trust entirely. He considered that there are two types of part-time permanent employees to consider:
Our comment
It is clear from Judge Underhill’s judgment that he recognised the potential implications of his decision but concluded that the Working Time Regulations did not provide for a pro-rating approach to holiday accrual for permanent staff. Although we do not believe that the intention of the UK Parliament was for zero-hours or term-time-only employees to continue to accrue holiday when not working, we recognise that the Working Time Regulations, as noted by Judge Underhill, do not incorporate the pro-rata principle. We consider that this decision may force the Government to address the current legislation and provide a clear system for working out holiday pay for permanent zero-hours or term-time-only employees, but how quickly this is likely to happen is anybody’s guess.
This ruling will have a huge impact on employers and organisations who use part-year employees. Our view is as follows:
This decision could have significant cost implications for employers who engage zero-hours and term-time-only employees on a permanent basis and, therefore, we would strongly recommend that any employer with zero-hours or term-time-only contracts urgently reviews its holiday-pay arrangements.
If you require advice on this issue, please contact your usual contact in our employment team or speak with Anna Dabek or Matthew Wort.
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