In July 2022, the Supreme Court made a decision on the case Harpur Trust v Brazel. This upheld the previous Court of Appeal decision, that the 5.6 weeks’ annual leave entitlement under the Working Time Regulations must not be pro-rated for part-year workers on permanent contracts.
The Claimant was employed by the Trust as a music teacher on a permanent contract on a zero-hour basis. She was only paid for the hours she worked, which varied week to week, and she only worked part time during term time. It was agreed that she would take her annual leave during school holidays with payments for this being made in April, August and December.
The law states that all workers in the UK are entitled to 5.6 weeks’ paid leave or the pro-rated equivalent for part time workers. To calculate the holiday pay owed, some businesses use the ‘calendar week method’ which is to look at the average weekly earnings of the preceding 52 weeks (ignoring any days not worked) and multiply this by 5.6. However, the Trust, like many businesses, used the ‘percentage method’ and calculated holiday pay as 12.07% of earnings in the previous term, which was in accordance with ACAS guidance at the time.
The Claimant argued that she was being underpaid using the percentage method and that her pay should have been calculated based on hours she worked the previous term, which would result in holiday pay at a higher rate of 17.5% of her earnings. She therefore brought a claim for unauthorised deduction from wages for the difference, and a claim for less favourable treatment on the grounds of her part time status.
The Supreme Court determined that using ‘percentage method’ to calculate holiday pay for permanent workers was unlawful and that using the ‘calendar week method’ to calculate holiday pay was straightforward and should be followed.
The Supreme Court acknowledged that this calculation may lead to permanent workers who work irregular hours being paid more holiday pay than those who worked full time. However, it stated that giving a more generous entitlement for part year workers than full time workers did not infringe the directives.
Implications and considerations
The Supreme Court has confirmed that the ‘percentage method’ should no longer be used and therefore workers on permanent contracts will be entitled to 5.6 weeks’ paid holiday each year, even if they only work part of the year.
This decision will impact many, including those on zero-hour contracts; individuals who carry out seasonal work; or staff such as teachers and cleaners who have been employed to work term time only.
When calculating holiday pay, organisations should use the ‘calendar week method’ as set out above. This method is unfortunately going to cost many organisations a lot more than they would have budgeted for, as part-year workers will now be paid a higher rate for holiday than would previously have been calculated if the ‘percentage method’ had been used.
If the ‘percentage method’ has been used, it is advisable to conduct an internal audit to find out who might be affected by this decision and work out what the difference is. If workers have been underpaid holiday pay in previous years, they will have three months to bring a claim from the date of the last deduction and could be entitled to recover up to two years’ backdated holiday pay.