Case update (2): Happy holidays! Pay for term-time workers

We updated you in our recent March 2018 Newsflash Happy holidays! Pay for term-time workers on the EAT’s decision in the case of Brazel v The Harpur Trust. 

The EAT decided that holiday pay for term-time workers should be calculated based on the reference period of the 12 weeks prior to the holiday – not on the basis of 12.07% of annual pay.

As we know that this will cause headaches for some of our school and college clients we promised to go into further detail in this Newsletter. So here it is…

Summary:  Can the holiday pay rate for term-time workers be legally calculated on the basis of 12.07% of annual pay?

No, says the EAT in Brazel v The Harpur Trust, available here.

Facts: Mrs Brazel was a part-time music teacher, retained on a zero-hours contract. She worked mostly during term-time and her hours fluctuated weekly. She had a contractual right to 5.6 weeks’ paid holiday, mirroring her statutory right, and she was required to take this holiday during school holidays.

Mrs Brazel was paid holiday pay based on 12.07% of the actual hours worked each term at the end of the term.  She received holiday pay three times a year in her March, August and December pay packets. This approach was based on the ACAS guidance on holidays and holiday pay for casual workers and avoided a “windfall” for term-time workers as their non-working weeks would be taken into account and their holiday pay pro-rated.  However, it did not follow the methodology used by the Working Time Regulations i.e. calculating holiday pay based on the normal rate of pay averaged over the 12 weeks prior to holiday being taken.

The Tribunal decided that a principle of pro-rating should apply, so that either:

• in the case of a part-time worker, like Mrs Brazel, working fewer than 46.4 weeks per year, the statutory scheme by which a week’s pay is calculated should be “read down” so that holiday payment should be capped at 12.07% of annualised hours; or
• the entitlement to 5.6 weeks’ leave should be pro-rated, with leave entitlement based on the amount of weeks worked in a year.

The employer appealed to the EAT which overturned the Tribunal’s decision.   The EAT’s decided that Mrs Brazel’s holiday pay should have been calculated using the 12 week averaging method. This means that for an individual working 32 weeks of the year, the calculation should be 17.5% (rather than 12.07%).

The EAT did not consider there to be a requirement to pro-rate the leave entitlement of part-time employees, whether to avoid a “windfall” for term-time only workers or to avoid full-time employees being treated less favourably than part-timers.

The EAT also commented that the overriding principle of the Part-time Workers Regulations is that part-time workers are not to be treated less favourably than full-time workers. There is no principle to the opposite effect, and as such there was no basis for the Tribunal’s amendment of the statutory 12 week averaging scheme, the provisions of which are unambiguous.

Implications:  When calculating holiday pay for employees who do not have regular hours of work, whether they are term-time workers or any other irregular working pattern, the correct approach is to work out the average pay in the 12 week period prior to the holiday being taken (which will no doubt largely be working weeks).

This is regardless of the fact that it will most likely lead to a “windfall” for term-time workers in particular.

Unfortunately simply paying 12.07% annualised hours as holiday, or increasing hourly rates by 12.07%, to include an element for holiday pay (‘rolled up holiday pay’) may produce the wrong result for employees and may leave you vulnerable to claims for unlawful deductions from wages.

If you have been working on the 12.07% principle, whether as an amount paid in addition to hourly rates or as the basis for holiday entitlements paid when holidays are taken, you should now assess whether there has been an underpayment and consider changing your approach for future holiday payments.

This remains a complex area and if you have any holiday pay concerns please do please do email Menzies Law or call 0117 325 0526.