An important ruling concerning holiday pay
21st September, 2022
The case of Harpur Trust v Brazel decided that the ‘12.07% method’ for calculating holiday entitlement for casual workers is not compliant with the Working Time Regulations 1998.
In a long-awaited judgment which was recently published, the Supreme Court delivered a landmark judgment on how employers should calculate holiday pay for workers without normal working hours. The case of Harpur Trust v Brazel decided that the ‘12.07% method’ for calculating holiday entitlement for casual workers – favoured by employers and until recently encouraged by ACAS – is not compliant with the Working Time Regulations 1998.
The key aspect of the judgment was that all workers must receive 5.6 weeks’ annual leave each year irrespective of how often they actually work. The Supreme Court ruled that converting this 5.6 week entitlement into an hours figure by multiplying hours actually worked by 12.07% (to reflect the rate at which statutory holiday entitlement accrues for full-time workers) was not permitted by the strict wording of the Working Time Regulations. This is particularly problematic for workers without normal working hours, as when they take holiday they are entitled to be paid at their average weekly rate over the previous 52 weeks – crucially excluding any weeks in which they have not received any pay. The crux of the issue is that casual workers are now essentially entitled to 5.6 weeks’ full holiday pay, even if they only work in for example 10 out of the 52 weeks in that year. The calculation method set out by the Supreme Court means that their holiday pay entitlement will be significantly greater than the 12.07% method – in many cases several times greater, although the scale of the difference in any given case will depend on the exact nature of the working pattern in that holiday year.
The judgment has opened up the possibility of backdated holiday pay claims against employers, in addition to raising serious questions about whether the typical ‘casual worker’ engagement model remains a financially viable and attractive option for organisations. Whilst businesses and workers across many sectors have valued the mutual flexibility which these working arrangements provide with neither party required to offer or accept work, it could now come at a potentially significantly increased cost for employers.
Who does this affect?
Whilst the case itself focused on a music tutor who worked only during school terms, the impact of the judgment is by no means limited to ‘term-time only’ staff. The judgment will apply to any organisation which employs staff on a zero-hours basis, with such individuals often termed ‘casual’, ‘sessional’ or ‘bank’ staff. It could also impact workers who have a notional number of guaranteed weekly hours in their contract which are simply unrepresentative of the hours which they actually work each week, although it does not impact staff with normal working hours who work regular overtime.
What should your organisation be doing?
There are a number of potential options to replace the casual worker model if this no longer meets your business needs in light of the Supreme Court judgment, although none are likely to offer the same level of flexibility at the same reduced cost. Employers should also look at whether to bring existing casual worker arrangements to an end to crystallise any potential holiday pay liability, although considerable care should be taken to do so particularly where workers have more than 2 years’ service or there are 20 or more such workers in total as these represent potential risk factors.
If you believe that your organisation may be impacted by this judgment we can help you assess your exposure based on your specific circumstances and explore the options available to you.