The Court of Appeal has made its judgment on the correct calculation of holiday pay in the case of a permanent employee whose working pattern varied across the course of the year.
The individual, Ms Brazel, was a music teacher whose teaching duties were conducted during term time only. She was a permanent employee, rather than a freelance, although she carried out her work only during term time and that distinction was relevant to the conclusion on holiday pay.
The Working Time Regulations 1998 and the Employment Rights Act 1996 combine together to provide that where an employee has normal hours of work, the calculation of holiday pay is by reference to those normal hours. However, where the individual does not have normal working hours, and pay varies according to the number of hours worked, then holiday pay must be calculated on the basis of average earnings over the 12 week period prior to the holiday.
The school at which Ms. Brazel worked had adopted a calculation for holiday pay which averaged working hours across a year and paid her holiday pay equal to 12.07% of annual pay. 12.07% of pay is equal to pay for 5.6 weeks (the statutory entitlement under Working Time Regulations) divided by 46.4 weeks (the balance of the year after deduction of 5.6 weeks leave). The Trust calculated her earnings each term and paid her 12.07% of that figure at the end of the Christmas, Easter and Summer terms. And her leave was then taken during school holidays.
If the statutory test of averaging earnings over a 12 week period were applied, then Ms Brazel would have received a higher amount of pay, stated in the judgment to be 17.5% of her annual earnings.
The school argued that European and English law allows for pro-rating of entitlements for part-time and that an approach which pro-rated her pay on the same basis as her hours was acceptable. The Court of Appeal, however, concluded that there was no reason to do anything other than apply the standard provisions of The Working Time Regulations, which require averaging over a 12 week period, to the calculation of holiday pay.
The Judge noted that The Working Time Regulations might produce odd results in extreme cases but stated that “general rules sometimes produce such anomalies when applied in untypical cases.”
Where an employer chooses to employ an individual on a permanent contract, so that they are employed through the year, they must accept the additional costs that come with that choice. There was no need to incorporate a pro-rata principle, which would involve “doing violence to statutory language.”
In this case one of the reasons for employing Ms. Brazel on a permanent basis was to simplify the need for safeguarding checks required for new employees
It is important to note that the requirement to use average earnings to calculate holiday pay applies only when there are no normal working hours. If there are fixed hours of work, then holiday pay should be paid at the same rate the individual earns for their normal week’s work.
In any case where the 12.07% figure does not produce the same result as would be produced by calculating an average pay over 12 weeks, an employer will be liable for the balance.
Employers should therefore check their calculations, particularly in respect of staff who work term time only or similar patterns in which there will be a number of weeks with no work.