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A casual calculation: holiday pay for irregular workers

A casual calculation: holiday pay for irregular workers

Employers will be taking a sharp intake of breath at the recent decision of the Court of Appeal in the case Brazel v The Harpur Trust (UNISON intervening) which addresses how to calculate pay for workers and employees who work irregular hours throughout the year.

The decision

The case concludes that the current practice of paying 12.07% of annualised hours to discharge an employer’s holiday pay obligation, as set out in ACAS guidance, is no longer reliable. Holiday pay may now need to be calculated by reference to the particular employee’s working pattern.

Mrs Brazel was a part time music teacher on a zero hours contract who worked term times and was required to take her holidays out with term time. She complained to the Employment Tribunal that the 12.07% calculation meant that she was underpaid. Her complaint was dismissed, the Tribunal finding that the alternative method of calculation proposed by Mrs Brazel would result in a windfall to part time workers and would be less favourable to full time workers as a consequence. Mrs Brazel appealed to the EAT who upheld her complaint, as did the Court of Appeal which concluded that the 12 week averaging provisions contained in Regulation 16 of the Working Time Regulations and sections 221-224 of the Employment Rights Act are “straight forward”. A view which most employers would challenge.

The practical ramifications of the recent decision mean that workers with atypical hours may now need to have their holiday pay calculated every time, by looking back over the preceding 12 weeks (or longer). Note: weeks when no work is done are not taken into account for the averaging provisions, so the averaging period may extend back well beyond just the last 12 weeks in some cases. Further, the averaging provisions are likely to result in potentially vast differences in holiday pay being payable depending upon when a week of holiday is taken. That, in turn, may result in a worker only wishing to take a week of holiday after a particularly busy 12 weeks, to maximise holiday pay. Conversely, employers may refuse holiday following busy periods.

It is also worth noting that the decision does not impact on the calculation of the holiday entitlement but focuses on how the pay should be calculated.

The Law and the impact of Brazel

It is important to remember that the 12.07% formula is not prescribed by the Working Time Regulations 1998. It is a rule of thumb that makes the calculation of holiday entitlement simpler for those with irregular working patterns. However, it is not guaranteed to comply with the WTR 1998 in all cases (as was shown to be the case here). 

It may have been simpler and more equitable if the Working Time Regulations had been drafted so as to provide for all workers (whether full time, part time, ad-hoc, temporary, or part year worker) to get an additional 12.07% for holiday pay which is added on top of any pay attributable to time spent working. This could similarly be expressed as 10.77% of total pay. It equates to the same thing, and it is simple mathematics. It reflects 5.6 weeks as a proportion of the year. It is not pro-rated. Everyone has a right to take 5.6 weeks off, and the minimum percentage “pay” for that time off could also be expressed as a percentage (again, so that the same applies to all). 

However, the law makers in their wisdom have not drafted the Working Time Regulations in that way. As a result, the courts are now telling us that someone who works more and gets paid more during the 46.4 weeks of the year which is not annual leave, may get paid the same for their remaining 5.6 weeks of annual leave as compared to a colleague who works for half as much time during the same 46.4 week period. That was the outcome of this most recent Court of Appeal decision.  It may seem to defy logic.  However, it is the type of peculiar result that can arise from a strict application of the “weeks pay” provisions, as currently provided for.  It is perhaps also a product of the courts not being willing to consider the wider application of the rules, across a wider social nd business background.

Looking ahead

There is some good news. As a consequence of the Taylor review the government will increase the reference period for determining an average “week's pay” from the current 12 week reference period to a 52 week reference period. This ought to ensure that workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take their holiday at a quiet time of the year when their weekly pay might be lower. This will be implemented by the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 (SI 2018/1378) and the change will come into force on 6 April 2020

However, even with a 52 week reference period the calculation will still disregard weeks when no remuneration is payable.  As such, this may still cause difficulties for certain sectors, for example in the offshore sector where rotational arrangements for ad-hoc workers may mean that there could be many weeks in a year when a worker receives no pay and, as a result, those weeks cannot be factored in when calculating an “average” week’s pay.  

By Tricia Walker,
Partner

Burness admin