Question of the month: how should holiday pay be calculated for term-time only workers?

Court of Appeal confirms school was wrong to pay holiday pay at the rate of 12.07% of earnings.

Where does the 12.07% calculation for holiday pay come from?

Part-time workers are commonly paid holiday pay at the rate of 12.07% of earnings. But how do employers come to this figure?

First, it is important to be clear that holiday leave and holiday pay are calculated in different ways.

Holiday leave

The minimum holiday leave entitlement under the Working Time Regulations is 5.6 weeks per year. It can be tricky to calculate holiday leave entitlement at any particular stage of the year for workers who do not work full-time. Often, employers use a calculation of 12.07% of hours actually worked so that they can work out holiday leave entitlementas it accrues hour by hour. This calculation is based on a standard working year of 52 weeks minus 5.6 weeks (46.4 weeks): 5.6 is 12.07% of 46.4 weeks.

Holiday pay

It is also common for employers to use the same percentage for holiday paycalculations and so simply to pay 12.07% additional pay as holiday pay. However, as the case below highlights, this calculation will not always be compliant with the statutory rules for holiday pay set out in the Employment Rights Act 1996. Under these rules, a week's pay should be paid for a week's leave. Where a worker has variable hours, a week's pay is the average weekly pay over the last 12 working weeks before the holiday was taken. This calculation ignores any weeks during which the worker received no pay.

Because "part-year" workers, such as those who work only during school terms, work fewer than 46.4 weeks in a year but are still entitled to the 5.6 weeks' paid holiday, they will not be paid the correct holiday pay if the 12.07% calculation is applied.

Case details: The Harpur Trust v Brazel

Mrs Brazel worked under a term-time only zero hours contract as a visiting music teacher at Bedford Girls' School. She worked between 32 and 35 weeks per year. Her contractual and statutory paid holiday leave entitlement was 5.6 weeks. She was required to take all her leave during school holidays. Her holiday pay was calculated as 12.07% of her pay and was paid three times a year at the end of April, August and December.

The employment tribunal decision

Mrs Brazel brought a claim for unlawful deductions from wages, arguing that her holiday pay should be calculated under the week’s pay provisions set out in the Employment Rights Act (applying the 12 week average) and not by paying her an additional 12.07% of pay. If Mrs Brazel worked 32 weeks in a year, the tribunal calculated that she would, by the 12 week average calculation, have been paid holiday pay at a rate of 17.5% of annual earnings. The tribunal dismissed the claim, determining that words should be read into the Working Time Regulations to ensure that the statutory entitlement to holiday pay is pro-rated, in effect capping paid holiday leave entitlement at 12.07% per cent of annualised hours and not so not favouring part-time workers.

The EAT decision

The EAT disagreed. It stated that Mrs Brazel was entitled to 5.6 weeks' paid leave under her contract and under legislation, and that the Employment Rights Act contains a clear mechanism for calculating a week's pay where there are variable hours. There was no basis on which to read words into the Working Time Regulations to pro-rate the 5.6 weeks' paid leave entitlement so that part-time workers were not treated more favourably than full-time workers. It pointed out that legislative protection works the other way around to protect part time workers from being less favourably treated than full-time workers.

Court of Appeal decision

The Court of Appeal agreed with the EAT. It considered the possible anomalies which could arise, such as a cricket coach who is employed on a permanent contract from year to year but works only 12 weeks a year. It confirmed that such a worker would be entitled to the statutory minimum of 5.6 weeks' paid leave at the rate of a week's pay (in other words, the coach would be paid 17.6 weeks' pay for only 12 weeks' work). The judgment makes clear that this would only apply where there is an on-going contract and so the worker accrues the full statutory minimum leave for the year. It would not apply for workers who are engaged on short-term contracts from time to time. The Court was clear that such extreme cases are not sufficient to require the application of the pro rata principle to all workers.

Wrigleys' comment

The school in this case was following non-statutory guidance from Acas on calculating holiday pay for workers with irregular hours. It is likely that this guidance will now be updated. Schools are advised to check whether their term-time only workers are receiving the statutory minimum paid holiday leave based on average pay over the last 12 paid weeks. It is possible that this decision may encourage term-time only staff or other "part-year" workers to bring unlawful deduction from wages claims for underpaid holiday pay (which would be limited to any arrears for the last two years) or breach of contract claims in the civil courts (for which 6 years of arrears might be claimed).

Chris Billington, Head of Wrigleys' Education team, commented: "The Court of Appeal judgment highlights some interesting anomalies in the paid holiday leave entitlement for permanent but seasonal workers (such as those who work only in Summer holiday clubs). It is unusual for employers to have in place permanent contracts for staff who only work for a few weeks a year. However, as was acknowledged by the Court, schools may do so in some cases in order to cut the administrative burden of obtaining new DBS checks for each seasonal engagement. School employers will now need to weigh up the risks and benefits of such contracts and may consider moving to more short-term engagements."