Should you pro-rata holiday entitlement and pay for those workers who only work part of the year?
In a recent case decided by the Court of Appeal the issue of term time workers and their entitlement to holiday was scrutinised. The outcome should simplify things for employers who have term time or part year workers.
The law regarding the application and entitlement to holiday is set out in the Working Time Regulations which implement into UK law the Working Time Directive.
The key applicable regulations of the Working Time Regulations are Regulation 13, 13A and 16.
Regulation 13 sets out that workers are entitled to 4 weeks leave (under EU law) and 13A extends this entitlement in the UK to 5.6 weeks annual leave.
Regulation 16 deals with payment for leave and states:
- A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulations 13 and 13A, at the rate of a week’s pay in respect of each week of leave.
Also applicable to holiday and pay is the definition of a ‘weeks pay’ set out in the Employment Rights Act 1996 – sections 221-224.
In short where an employee does not have normal working hours or a varied pay rate then a weeks’ pay is calculated on the basis of an average of their pay over the previous 12 weeks.
The employee in this case, Ms Lesley Brazel, was employed by The Harpur Trust as a clarinet and saxophone teacher at the Bedford Girls School which the Trust are responsible for running.
Although Ms Bazel was a permanent employee, she had no set working hours and the hours she worked in any term varied depending on the number of pupils requiring tuition. Her pay each month was based on an agreed hourly rate paid for the hours worked. Ms Bazel was not required to work during school holidays and the number of working weeks in each academic year would vary between 32 and 35.
Ms Bazel was a part time employee, in that she did less than full time hours when working, and she also worked term time only.
As with many schools and academic settings where employees work term time the holidays are actually a lot longer than the legal minimum, the Trust did not designate which of those holidays were designated as legal/statutory leave, instead they would make 3 equal payments in respect of her leave year at the end of April, August and December.
In order to calculate Ms Bazel’s holiday pay the Trust followed the ACAS guidance booklet for calculating casual workers entitlement and did so on the basis of 12.07% of hours worked. Therefore, they calculated her earnings at the end of the terms and paid her one-third of 12.07% of that figure.
Ms Bazel argued that by calculating her holiday entitlement and pay in this manner she was worse off.
The Trust accepted that the way in which it calculated her holiday pay led to a lesser amount than on Ms Bazel’s calculation but defended their method on the basis that they were using the ‘pro-rating’ principle set out in the law.
Ms Bazel made a claim to the Employment Tribunal who decided the case in favour of the Trust. She then appealed to the Employment Appeal Tribunal, who found in favour of Ms Bazel.
The Trust then appealed to the Court of Appeal.
The issue for the Court of Appeal to decide was who was correct in their calculation of holiday entitlement and pay for a term time worker.
‘The essential difference between the parties is whether the calculation of the Claimant’s holiday entitlement or holiday pay should be pro-rated to that of a full-year worker in order to reflect the fact that she does not work throughout the year’.
In the Judgement the Court of Appeal clarified the difference between a part-time worker who works for part of the week, where it is normal to pro-rata their holiday entitlement, and the position of Ms Bazel. They said, ‘What we are concerned with is whether she should receive less than her entitlement, so calculated, in order to reflect the fact that she does not work throughout the year.’
The Court of Appeal agreed with Ms Bazel’s assertion that her holiday was a straightforward exercise of identifying a weeks’ pay in accordance with the Employment Rights Act and multiplying that figure by 5.6 and did not agree with the Trust decision to use a calculation reflecting her term time status.
Points to Note
The outcome means that if you have term time workers you cannot pro-rata their holiday entitlement and pay on the basis that they only work part of the year and therefore you should not use the 12.07% calculation as the Trust were doing in this case.
The employees should therefore receive 5.6 weeks legal minimum holiday and pay.
Action to Take
- if you have term time or part year workers check how you are currently calculating holiday entitlement and pay.
- Make necessary changes to your holiday policy and/or contracts to reflect the changes required as a result of this case.
- Holiday calculations can be complicated and therefore you should seek advice if you are unsure so that you can avoid a claim against you for unpaid wages, as was the case here.
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