Calculating Holiday entitlement for permanent workers with irregular hours
Calculating holiday pay for full-time and part-time workers is pretty straight forward – multiply the number of days they work each week by 5.6.
However, where a worker does not have regular or normal working hours, holiday pay is calculated based on their average weekly pay in the 12 weeks before the holiday date (or if the worker did not work in the previous 12 weeks, then the last 12 weeks they worked/earned). (This increases to 52 weeks from 6th April 2020 and you can read more information about that here).
But, as this can be complicated and time-consuming the calculation of 12.07% is often used to calculate holiday entitlement and holiday pay (based on 52 weeks less 5.6 weeks = 46.4 weeks. 5.6 weeks x 46.4 weeks is 12.07%).
However, although the 12.07% method is recommended by Acas there is criticism of this method and in early 2018 the EAT, in Brazel v Harpur Trust (where Ms Brazel was a visiting music teacher at Bedford Girls’ School working on a term time only contract, but with no set regular hours and no set term length), held that using the 12.07% method to calculate holiday pay was incorrect for workers who are employed on permanent term-time and/or zero hours contracts with variable hours; and their pay should be calculated by their average earnings over the previous 12 weeks.
This case went to the Court of Appeal in August 2019 and the CoA agreed with the EAT (accepting the fact that this could mean some part-year workers are entitled to a higher proportion of their annual earnings as holiday pay; because Ms Brazel was employed on a permanent contract and was therefore entitled to 5.6 weeks holiday a year).
This decision does not affect workers on part-time regular hours contracts.
This also does not affect casual workers, only employees, so the Acas guidance of 12.07% is aimed at casual workers only, not permanent employees (we wait for Acas to update their guidance!).
This decision does mean that all people employed under permanent contracts who work irregular hours will be entitled to 5.6 weeks holiday pay each year, regardless of the number of weeks they actually work throughout the year. Employers should therefore assess the employment status of their workers who work irregular hours, if they are employed on a permanent contract, this will affect them.
In addition, new regulations are meant to come into force in April 2020 which will change the 12 week reference period for calculating holiday pay to 52 weeks – we’ll update this as we get new informationn.
The Harpur Trust may of course appeal this decision to the Supreme Court.
The Department for Business, Energy & Industrial Strategy produced a guide in 2019, called ‘Holiday Pay – Guidance on calculating holiday pay for workers without fixed hours or pay’ which you can see here.