Harpur Trust v Brazel – are you calculating holiday pay correctly?

Supreme Court decision handed down in Harpur Trust v Brazel - holiday for part-year workers should not be pro-rated

The Supreme Court has handed down its highly anticipated decision in the case of Harpur Trust v Brazel. The Court has decided that the amount of holiday a part-year worker employed under a permanent contract is entitled to should not be pro-rated to be proportional to that of a full-time worker. The decision will impact how employers calculate holiday pay for some of their workers who work part of the year, such as term time only staff.

Background

Ms Brazel was a visiting music teacher at a school. She was employed under a permanent contract on a zero-hours basis so was paid only for the work she carried out. She did not work a full working week and did not work during school holidays. Ms Brazel was entitled to the usual 5.6 weeks’ holiday per year and had to take this during school holidays. Her employer paid her a lump sum for her holiday in April, August and December each year by calculating 12.07% of her earnings in the preceding term. This has been used as a way of calculating holiday pay for workers with variable hours and pay, as 12.07% is the 5.6 weeks’ holiday entitlement expressed as a percentage of working time (calculated as 5.6 divided by 46.4, with 46.4 being 52 weeks minus 5.6 weeks). 

Ms Brazel argued that she was underpaid and her holiday pay should have been calculated using the ‘week’s pay’ calculation prescribed by section 224 of the Employment Rights Act 1996, which involved taking her average earnings over the preceding 12 weeks. If the school had done this, she would have been paid holiday pay of around 17.5% of her earnings for the term. 

Ms Brazel’s claim was unsuccessful at the Employment Tribunal but her appeal at the Employment Appeal Tribunal succeeded. The school unsuccessfully appealed to the Court of Appeal and then to the Supreme Court.

The Supreme Court’s decision

The Supreme Court agreed with Ms Brazel, finding that the school should have calculated her holiday pay by using the ‘calendar week method’, i.e. calculating her average week’s pay based on her pay in the preceding 12 weeks but ignoring any weeks she did not work. Despite not working all year round, she was still entitled to 5.6 weeks’ holiday. As such, her employer should have calculated her yearly holiday pay by identifying a week’s pay and multiplying that figure by 5.6, rather than paying her 12.07% of her earnings. It was wrong to pro-rate her holiday entitlement to take account of weeks not worked. 

The Supreme Court noted that the ‘calendar week method’ of calculating holiday pay could result in part-year workers receiving a higher proportion of their annual earnings as holiday pay than full time or part time workers who work regular hours, but said that this was no reason not to follow the clear wording of the Working Time Regulations. The Court ruled that the amount of holiday to which a part-year worker under a permanent contract is entitled must not be pro-rated to be proportional to that of a full-time worker. A more generous entitlement for part-year workers does not infringe the Working Time Directive (from which the Working Time Regulations are derived). Therefore the ‘calendar week method’ represents the correct implementation of the Working Time Regulations and fully complies with EU law.

Note that, with effect from 6 April 2020, the calculation of a week’s pay under section 224 of the Employment Rights Act 1996 involves taking average earnings over the preceding 52 weeks, rather than 12 weeks, ignoring any weeks where no work is done.

The Supreme Court decision is final and cannot be appealed.

What does this mean for schools and other employers of "part-year" workers?

It is important to understand which workers this decision will affect. First, the decision only applies to workers with irregular working patterns whose pay varies according to the hours they work i.e. those paid by the hour. Term time only staff who are paid a salary each month will not be impacted by this decision, as their pay is the same regardless of whether they are at work or on holiday. Second, the decision only applies to workers who are employed permanently, rather than workers who are employed on short term zero hours contracts (as any untaken holiday can be paid to them in lieu when the contract ends).

If you have any part-year workers who are permanently employed and their pay varies according to the work they do, then you may need to review your holiday pay policies and calculations. Calculating holiday pay using the 12.07% method will be highly risky and could lead to claims. Workers who have been paid using this method may bring Employment Tribunal claims and you may get pressure from staff and/or unions to recalculate holiday pay and pay underpaid holiday pay to affected part-year staff.

The decision unhelpfully does not give employers much guidance in terms of how to calculate holiday pay, other than to say it needs to be calculated using the ‘calendar week method’. For example, it remains  unclear how to calculate a day’s holiday pay (where someone wants to take a day off), rather than a week’s pay, for workers with irregular hours.

The ‘calendar week method’ could also produce a windfall for some workers, as the school highlighted in the Supreme Court hearing. For example, take an exam invigilator who is engaged by a school on a permanent zero hours contract and works for one week and earns £100. He will be entitled to 5.6 weeks’ holiday at the rate of a week’s pay which, given that he’s only worked 1 week, will be £100. He will therefore be entitled to £560 holiday pay. 

This is, of course, an extreme example, but illustrates the issues with this calculation method. There is also the administrative hassle of having to work out the average pay a worker has earned over the preceding 52 weeks, ignoring any weeks in which they have not worked. 

Holiday pay therefore continues to be a notoriously complex area for employers and HR to grapple with. If you have any questions on the issues raised by this decision feel free to get in touch with the Education or Employment Team.