Does your organisation employ part-year workers? Are you paying them the correct holiday entitlement? Caroline Jones from BDO explains the impact of the recent Harpur Trust ruling v Brazel Supreme Court ruling.
On 20 July 2022 the Supreme Court delivered its judgement on the issue of statutory holiday pay entitlement for employees who are employed from year to year, but are contractually only required to work at certain periods during the year (‘part-year workers’).
Background
Mrs Brazel was engaged by the Harpur Trust as a music teacher where she was only required to work during term time. She claimed that there had been an underpayment of wages by her employer, the Harpur Trust, based on the fact that, in recent years, her holiday pay had been calculated using the “percentage method”.
After being considered by an Employment Appeal Tribunal and the Court of Appeal the case was finally heard by the Supreme Court in November 2021 and its judgement handed down on 20 July 2022.
The circumstances of the case itself may be mirrored by many charitable organisations who employ individuals all year round, but where those individuals are required to work sporadically or on a seasonal basis.
In line with previous ACAS and BEIS guidance, many employers, including charitable organisations, have adopted the percentage method for calculating holiday pay entitlement, paying 12.07%* of an individual’s pay, pro-rated based on their working hours in the preceding 12 weeks.
Supreme Court judgement
The Supreme Court found that using the percentage method to calculate a part-year worker’s holiday entitlement does not comply with the Working Time Regulations 1998.
All part-year workers are entitled to 5.6 weeks of holiday, regardless of their working hours or what proportion of each year they work.
This should not be reduced for part-year workers, even though in some cases it could lead to such workers receiving disproportionately more holiday entitlement than full-year workers.
A distinction should be made at this point between part-time workers and part-year workers. Part-time workers are also entitled to 5.6 weeks’ holiday; however, this can be adjusted to take into account the actual hours worked.
For example, someone who works all year, 4 days a week would be entitled to 80% of the 5.6-week entitlement: 22.4 days. Whereas under the new judgement, part-year workers are entitled to the full 5.6 weeks, regardless of what hours they work.
What impact does the decision have for charities?
It is important for charities to establish what holiday entitlement their part-year workers currently have and if there have been shortfalls in holiday pay. This, with a view to rectifying any underpayments and putting in place new processes and procedures to ensure that the correct holiday pay is made in future.
Charities may also wish to go a step further and review their contractual arrangements – this may mean considering whether to engage part-year workers going forward or instead engage such workers via fixed-term contracts.
It will be important to decide what works practically and most cost-effectively, whilst still complying with holiday and holiday pay entitlement.
*(5.6 weeks/46.4 working weeks = 12.07%).