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Holiday pay for zero hours or term-time workers: are you paying the correct amount?

05 November 2018

When considering holiday entitlement for zero hour workers, term-time workers, or any other workers who do not have normal working hours, the calculation of holiday entitlement on the one hand and the calculation of holiday pay on the other, are very different and can be confusing for employers.

In the decision of Brazel v Harpur Trust, the EAT decided that it was wrong for holiday pay to be capped at 12.07% of the worker’s earnings.

How to calculate holiday entitlement for workers with no normal working hours

Under the Working Time Regulations 1998 (WTR) workers have a right to a minimum of 5.6 weeks’ paid annual leave. A ‘week’s leave’ is not defined in the WTR so it can be difficult to work out in practice what this means for workers who do not have normal working hours (such as zero hours or term time workers).

It is common for employers to use a short cut method of calculating accrual of holiday entitlement as 12.07% of the hours worked. This is derived from the fact the standard working year is 46.4 weeks (52 weeks minus the statutory 5.6 weeks holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks. This percentage is also used by ACAS in their online calculations for holiday accrual for workers with no normal working hours.

How to calculate holiday pay for workers with no normal working hours

Employers often use the same 12.07% calculation for holiday pay and to simply pay an additional 12.07% of pay as holiday pay.

However, whilst this might be accurate in many cases it is not always compliant with the statutory rules for holiday pay set out in the Employment Rights Act 1996 (ERA) and can lead to workers being underpaid.

Under the ERA, workers are entitled to a week’s pay for each week of leave. A ‘week’s pay’ is calculated depending on whether the worker has normal working hours or no normal working hours.

If a worker has no normal working hours (or variable hours) a week’s pay is taken to be the worker’s average weekly pay in the 12 weeks before the holiday was taken. This calculation ignores any weeks during which the worker received no pay.

In the case of Brazel v The Harpur Trust, the EAT decided that calculating holiday pay for a variable-hour, term- time only worker based on the 12.07% method was not compliant with the statutory provisions in the ERA and it should have been calculated on the basis of the average of the last 12 working weeks’ pay.

Mrs Brazel was a visiting music teacher employed under a term-time only, zero-hours contract and worked between 32 and 35 weeks per year. She was entitled to 5.6 weeks paid annual leave which she was required to take during the school holidays.

The school calculated her holiday pay at a rate of 12.07% of hours worked in a term. She claimed unlawful deduction from wages arguing that her holiday pay should have been calculated under the provisions in the ERA based on the last 12 weeks’ worked (excluding any school holiday weeks).

The Tribunal calculated that if Mrs Brazel worked 32 weeks in a year calculating her holiday pay using the provisions in the ERA, her holiday pay would equate to 17.5% of her annual earnings.

The Tribunal dismissed the claim determining that the week’s pay should be capped at 12.07% of earnings as otherwise a part-time worker with variable hours would earn a higher rate of holiday pay than a worker with a standard working year whose holiday pay would equate to 12.07% of annualised hours.

Mrs Brazel successfully appealed to the EAT. It held that the ERA clearly sets out the mechanism for calculating a week’s pay for a worker with no normal working hours, or variable hours, based on the average earnings in the last 12 weeks worked and it could not be overridden by capping holiday pay based on the 12.07% formulae just because workers with no normal working hours would otherwise have a higher rate of pay than workers with standard hours.

What does this mean for employers?

Employers using a 12.07% holiday pay calculation for workers with no normal working hours (eg zero-hour workers; term time workers; seasonal workers) should review their holiday pay calculation methods to ensure it does not result in workers receiving less than their statutory entitlement to holiday pay, to avoid potential claims.

Employers should also check that they are paying holiday pay when the worker is on holiday. Paying ‘rolled up’ holiday (ie making an additional payment during the weeks that the worker is working) is unlawful.

Businesses using zero hour or variable hour workers should also check that their workers are being paid correctly in relation to the National Minimum Wage.

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