Plans to simplify holiday calculations (for part-year & irregular hour workers)

Government consults on changes to the Working Time Regulations 1998

The Government is consulting on changing the way that statutory holiday entitlement is calculated under the Working Time Regulations 1998 for part-year workers (those employed on permanent contracts but who only work part of the year) and workers with irregular hours. Under the Government’s proposals, holiday entitlement for these workers will be pro-rated based on the number of hours worked in the previous holiday year. Weeks when the worker did not work at all will be taken into account.

Holiday entitlement versus holiday pay

The Government consultation document proposes to use a different method for calculating a worker’s yearly holiday entitlement, compared to their holiday pay. We have used the same definitions in this article as in the consultation:

• Holiday entitlement – the 5.6 weeks of statutory paid holiday that workers are entitled to take each year; and
• Holiday pay – the pay that workers must receive when they actually take their statutory holiday

The Harpur Trust decision 

The proposals follow on from the Supreme Court’s decision in Harpur Trust v Brazel last year dealing with the holiday entitlement of part-year workers, such as term-time only staff. The Supreme Court ruled that the holiday entitlement of part-year workers must not be pro-rated to take account of weeks not worked. Instead, they are entitled to the usual 5.6 weeks’ holiday paid at their average pay over the preceding 52 weeks, ignoring any weeks where remuneration was not payable. As a result of the Supreme Court’s decision, part-year workers have a larger paid annual leave entitlement than part-time workers who work the same number of hours as them, but who work those hours across the whole year.

What is the Government proposing?

Calculating yearly holiday entitlement

The Government is keen to address this anomaly and ensure that part-year workers and workers with irregular hours receive the holiday entitlement and pay that reflects the hours they have worked. It proposes that employers should calculate holiday entitlement for part-year workers and irregular hours workers by:

• Calculating the total hours the worker worked in the previous leave year, including those weeks when they did not work; and
• Multiplying the total hours worked by 12.07% to give the worker’s total annual statutory holiday entitlement in hours (12.07% represents holiday (5.6 weeks) expressed as a percentage of working time (46.4 weeks))

This can be expressed as a simple calculation as follows:

• Hours worked in the previous leave year x 12.07% = annual statutory holiday entitlement in hours

The Government considered the alternative option of using a rolling 52-week reference period (rather than a fixed leave year) for calculating holiday entitlement but concluded this may cause problems; having a holiday entitlement which varies during the year means a worker would not understand exactly how much holiday they can take at any particular time. The Government considers that using a fixed reference period is the simplest approach as holiday entitlement would be agreed at the start of each leave year, in line with how the legislation works for workers with regular hours.

During the first year of a worker’s employment (until a 52-week reference period can be used), the Government proposes that workers should accrue 1/12 of their annual entitlement at the end of each month, based on the actual hours worked in that month.

This can be expressed as a simple calculation as follows:

• Hours worked in previous month x 12.07% = monthly statutory holiday entitlement in hours

How does this translate into days off?

The Government proposes that the same 52-week reference period should be used to calculate a flat average working day so that when a worker takes a day off, they take off the number of hours calculated from this average working day. The Government recognises this could create incentives for workers to take particular days off, for example, by taking leave on a day where they would have worked below average hours, a worker could potentially be paid more for a day off than if they had worked it. Although the alternative of using the reference period to calculate the average hours worked for specific days would avoid this, the Government considers it would be more burdensome for employers.

What about agency workers?

The Government has separate proposals for agency workers who have a contract for services with an employment business or umbrella company and are assigned to temporary roles at end-user clients. The Government proposes that when an agency worker is on assignment, their holiday entitlement should be calculated in the same way as for irregular hours workers in the first year of their employment, i.e., 12.07% of hours worked in the previous month. They could then take (and be paid for) this leave during the assignment or, for shorter assignments, they could take it at the end of the assignment or be paid in lieu. Either way, this would mean they would receive holiday entitlement and pay which is directly proportionate to the hours they worked. Under this proposal, agency workers would not accrue holiday in between assignments (when they are not working).

However, where the agency worker is on an assignment, which lasts longer than a year, the Government proposes that their holiday entitlement would be calculated using the 52-week reference period, as set out above.

What period will be used for working out holiday pay?

The Government does not plan to change the reference period employers should use for calculating holiday pay (as opposed to holiday entitlement). This will remain as the 52-week period before the holiday is taken. Weeks in which no remuneration was payable are excluded, and earlier weeks are brought in to make up the full 52 weeks. The Government seeks a view of its proposals with the consultation lasting eight weeks, ending on 9 March 2023.

What does this mean for employers?

It is not clear at this stage when any changes to the legislation will come into force and, as the proposals are subject to consultation, any changes enacted could differ from those currently proposed. In the meantime, the Supreme Court’s decision in Harpur Trust v Brazel sets out the correct legal position for now and employers could still face claims for underpaid holiday if they do not follow that decision.

If you have any questions about holiday entitlement and pay, please feel free to get in touch.