Calculating Holiday Entitlement and Holiday Pay for Atypical Workers

Following the much awaited Supreme Court decision in the Harpur Trust v Brazel holiday pay case, we consider the implications for calculating holiday entitlement and pay for atypical workers.

Holiday Pay

Harpur Trust v Brazel Holiday Pay Decision

Back at the beginning of this month we announced the Supreme Court decision in the Harpur Trust v Brazel holiday pay case, which upheld the decision of the Court of Appeal ruling that the percentage method (12.07%) for calculating holiday pay was unlawful.

Whilst the Supreme Court ruling may have major implications for thousands of employers, changing the way holiday pay should be calculated for staff working irregular hours on permanent contracts, it has created confusion about the way employers should calculate statutory holiday entitlement.

In Britain, holiday rights are set out in the Working Time Regulations 1998 (WTR 1998) and a worker’s statutory holiday entitlement is treated separately to their entitlement to statutory holiday pay.

Holiday Rights Under the Working Time Regulations 1998 (WTR 1998)

The main statutory rules on holiday rights are contained in the WTR 1998, which implement the Working Time Directive (2003/88/EC) (WTD). Article 7 of the WTD provides that each member state must ensure that every worker is entitled to paid annual leave of at least four weeks, with the conditions for entitlement to such leave being set by national legislation or practice.

Statutory Holiday Entitlement

Regulations 13 and 13A of the WTR 1998 set out the basic right to annual leave as follows:

  • A worker is entitled to 5.6 weeks’ annual leave in each leave year.  This is equivalent to 28 days for those who work five days a week). This is made up of the right under the WTD to a minimum of four weeks’ annual leave (20 days for full-time employees) each year (transposed into national law by regulation 13(1) of the WTR 1998).
  • The domestic right to an additional 1.6 weeks’ annual leave (8 days for full time employees) each year, which represents the number of public holidays in England and Wales in a year. However, there is no need to use these days on public holidays (regulation 13A, WTR 1998).
  • A worker cannot be entitled to more than 28 days’ statutory leave in a single leave year (regulation 13A(3)).
  • A part-time worker is entitled to 28 days’ holiday reduced pro rata, according to the number of days they work each week.  This can still be expressed as 5.6 weeks’ leave.
  • No minimum period of continuous service is required to qualify for statutory annual leave.
  • A worker whose employment begins part way through a leave year has a pro rata statutory holiday entitlement for that year.

Calculating Statutory Holiday Entitlement

The ruling in the Harpur Trust v Brazel case made clear that a worker on a permanent contract and engaged for a whole year has an entitlement to 5.6 weeks holiday, so all workers who do not have regular working hours.

However, the WTR do not set out how to convert this into entitlement in days or hours for workers with irregular hours. The latest government guidance suggests that holiday entitlement for workers who do not have a regular working pattern should be kept in weeks opposed to hours or days as this will make it easier to manage.

In consideration of this, employers may wish to calculate average days or hours worked each week based on a representative reference period, although the Regulations do not expressly provide for this.  For example, and using a 12-week reference period, if an employee works a total of 48 hours on a variety of days and hours, their average working week would equate to 4 days per week meaning a week’s leave for that worker would equate to 4 days.

For people with a fixed working pattern involving a set number of days of equal length and those contracted to work a set number of hours in a period of time, over days of different lengths, the methods used to calculate holiday entitlement remain unchanged following the ruling in Harpar Trust v Brazel.

Calculating Statutory Holiday Pay

Regulation 16 of WTR 1998 sets out provisions for what workers are entitled to be paid during statutory annual leave at a rate of a week’s pay for each week of leave, calculated in accordance with the complicated “week’s pay” rules contained in sections 221 to 224 of the Employment Rights Act 1996 (ERA 1996).

Before the judgment in the Harpur Trust v Brazel case, many employers opted to use the percentage method, which capped a worker’s holiday pay at 12.07% of the hours they worked.  This was calculated on the basis that a standard working year is 46.4 weeks and 5.6 weeks of the year would be 12.07% and this method was much easier to use than the more complicated Calendar Year Method.

However, following the ruling in the Harpur Trust v Brazel case, employers should now consider using the Calendar Year Method instead, as defined in the WTRs and which states that a worker’s entitlement to holiday pay is one week’s pay for each week of leave.

Once an employer has established what constitutes a weeks’ holiday for a worker who doesn’t have regular working hours (see Calculating Statutory Holiday Entitlement above), they will be able to correctly calculate how much holiday pay the worker is entitled to using the Calendar Year Method.

To do so, they should calculate the worker’s average weekly earnings over the previous 52-week period, ignoring weeks where the worker hasn’t earned anything, and going back up to a maximum of two years if necessary to establish the relevant 52 weeks’ pay information.  In circumstances where a worker hasn’t been with the employer for more than 52 weeks, the employer can take an average based on the time they have been working.

Do You Need Assistance?

The specialist employment law team at Employment Law Services (ELS) LTD have extensive experience in advising UK Employers on their legal obligations in respect holiday entitlement and pay to ensure compliance.  If you have any queries about your legal obligations you can call us on 0800 612 4772, Contact Us via our website or Book a Free Consultation online.