Friday has rolled round which means we have another case of the week for you to read. Last time out we looked at redundancy procedures and tribunal award uplifts. This week we are looking at calculation of holiday pay for casual or zero hours workers. This is actually a case we covered in 2019 that has since been appealed to the Supreme Court.

The question this week is:

How should holiday pay be calculated for workers who only work part of the year or term-time?

Ms Brazel, the Claimant, was a clarinet and saxophone teacher at The Harpur Trust, the Respondent, who operated the Bedford School for girls. The Claimant worked term time only, working roughly 32-35 weeks a year, and taught between 10-15 hours of music lessons a week.

The Claimant’s contract was a permanent role but stipulated that if no pupils requested clarinet or saxophone lessons the Respondent would not be obligated to offer her any work or pay her. The Respondent rolled holiday pay into salary and paid it in three blocks throughout the academic year.

The Respondent used a typical method of calculating holiday pay as 12.07% of hours worked as holiday pay. This being the amount of leave (5.6 weeks) divided by the amount of weeks worked (46.4 weeks OR 52 – 4.6 weeks). The Respondent divided this figure by three to determine the Claimant’s instalment for that term.

The Claimant put in a grievance that she was being underpaid holiday pay and instead it should be calculated on an average week’s pay over the term. Unsurprisingly the Claimant’s method of calculating holiday meant she would receive an extra 5.5% holiday pay. The grievance was rejected.

The Claimant presented an Employment Tribunal claim but remained an employee of the Respondent. The Employment Tribunal rejected the claim as it held the Respondent’s method of calculating rolled up holiday pay was correct. The Claimant appealed to the Employment Appeal Tribunal who reversed the decision in favour of the Claimant’s calculation.

The Respondent appealed to the Court of Appeal, the CoA judgment is the one we covered three years ago, The CoA upheld the Employment Appeal Tribunal’s decision. The Respondent appealed to the Supreme Court.

The Respondent argued that holiday pay must be pro-rated for part time or casual staff such as the Claimant. To do so would mean they would be entitled to the more than fulltime equivalent holiday pay. The Respondent offered alternative methods for calculating holiday pay for casual employees.

The Supreme Court rejected the appeal, it held that nothing in the Working Time Regulations prevented a court from awarding more generous holiday provisions. Whilst this case highlighted that some staff might receive more holiday pay than full time staff that was not sufficient justification for amending legislation to have a different calculation.

As such holiday pay for casual staff should not be pro-rated. Instead when there is a week with no work or pay, such as school holidays, this week should be ignored and counted towards the average. A week from the previous year should be substituted in its place. This is capped at 104 weeks in the event there are many weeks with no work.

Takeaway Point

This is an important decision for any employer that engages part-year casual staff. This is any employee who has a permanent contract but whoms not required to be offered or perform work every week of the year. In addition to teachers it is common to have part year staff in events and hospitality, agriculture, retail, care, security and some manufacturing.

Anyone who employs part year workers now needs to calculate holiday based on a 52-week reference period. However, if there is a week with no pay, this week should be substituted with a week from the previous holiday year with pay. There is a cap that the employee only has to go back 2 years’ if there still is not 52 working weeks over that period then the average can be pro-rated.

For example, if a hospitality chef for an events company works 45 weeks a year covering festivals, weddings and private events but is not offered work or paid for weeks where there are no events for them to cover, their holiday pay should substitute the seven weeks with no pay with seven weeks from the previous year where there was so there is a 52 week reference period to calculate a week’s pay.

The 52 week reference period is then divided by 52 to get a week’s pay and multiplied by 5.6, the number of week’s entitlement. This calculation does favor part year workers but is compliant with the Working Time Regulations.

Perversely this means that someone who works part time 2.5 days per week would receive less holiday pay than casual staff who worked 26 week’s per year even though their hourly rate was the same. This is because the part time employee has pay every week of the reference period whereas the casual employee would be topped up to a full year once non-paid weeks were substituted.

It may be that this is amended to correct this discrepancy but that will not likely be for some time given:

  1. Employment legislation changes usually occur in April, the next one April 2023.
  2. The Conservative party is currently deciding who the next Prime Minister will be following the resignation of Boris Johnson.
  3. The government is still yet to enact many employment law suggestions covering casual staff from 2019 due to Brexit and Covid taking up time and resources.

In the meantime employers who engage casual staff could consider some alternative solutions. The first, if possible would be to try and ensure there is always some work each week. For example in the chef example above the employer could ask the employee comes in on non-event weeks to do a day’s stock check or training with pay. This day’s pay would count as a week’s pay and allow fewer carry over weeks from the previous leave year, bringing the value of holiday pay down.

Alternatively employers could pay a nominal weekly retainer fee even in non working weeks. This would give every week some pay but not at the premium of a full week carried over from the previous year. Thus the average and cost of holiday would be greatly reduced.

Finally employers could consider removing bank staff and instead doing fixed term contracts for each period of engagement. This prevents them from being entitled to overpaid holiday but does generate a lot of administrative resources in constantly reissuing contracts.