Calculating Holiday Pay Update

If you’re a business owner or manager, then you’ll know that calculating holiday pay can be tricky. In this blog post, we’ll take a look at the recent landmark ruling by the Supreme Court in the case of Harpur Trust vs Brazel which has significant implications for workers who work less than a full year through part-year working or zero-hours contracts.

Previously, the guidance was to pro-rate holiday pay at 12.07% of wages for hours worked (the ‘percentage method’). The value of holiday entitlement would be divided over the working part of the year i.e. 46.4 weeks.

However, the Supreme Court rejected the above guidance, stating that holiday pay should be based on the statutory entitlement of 5.6 weeks paid holiday, regardless of whether the employee works the entire year or only part of it. The obvious example of this is term-time working.

Note that this does not apply to part-time employees who work a full year. Those on part-time contracts can continue to have their holiday calculated pro-rata. It also does not change the position for fixed-term employees, whose holiday can continue to be calculated pro-rata for the duration of the contract.

What do employers need to do:

• Calculate holiday pay by averaging pay over the previous 52 weeks worked. Any weeks an employee did not receive pay are not counted, so employers may have to go further back (up to a maximum of 104 weeks) to ensure a full 52-week period of paid work is identified. If the employee has recently joined, you average the pay over the weeks they have worked.
• Review your contracts: For staff who do not work a full year, employers need to consider whether offering contracts just for their working period is more appropriate, rather than having long-term permanent contracts. This could also be employment contracts that terminate at the end of each term, with the individual reapplying before the next term. This is cumbersome, however, and could result in duplicate criminal record checks needing to be performed if they are a requirement of recruitment.

Confused and need advice? If you have questions contact Rob Bryan Associates and we can talk you through it.