Holiday pay: 12.07% of annual earnings calculation should not be used for part-year workers.
The Supreme Court have ruled that part-year workers (term-time workers with year-round contracts) holiday pay should not be calculated as 12.07% of their annual earnings.
Firstly, where does 12.07% come from?
Workers are entitled to the statutory minimum of 5.6 weeks’ annual leave each holiday year under the Working Time Regulations 1998.
When calculating holiday entitlement, it is acknowledged that those 5.6 weeks of the year will not be worked.
The 12.07% figure is therefore reached by dividing 5.6 (weeks) by 46.4 (52 weeks minus 5.6 weeks).
Harper Trust v Brazel
The Claimant in this case is a clarinet and saxophone teacher who worked at schools providing individual lessons to pupils. Mz Brazel worked variable hours and was paid by the hour. Her contract was term-time only and stated that her annual leave was to be taken during school holidays.
The Respondent changed its calculating method for holiday pay in 2011. Previously, this had been calculated as an average of the previous 12 week’s earnings multiplied by 5.6 weeks. However, the Respondent changed their calculation to 12.07% of her termly earnings, which resulted in a lower payment.
Mz Brazel therefore brought a claim for unlawful deduction from wages, which she initially lost in the Employment Tribunal, but the Employment Appeals Tribunal overturned that decision. The Court of Appeal, and now the Supreme Court, agreed.
The Supreme Court noted that nothing in the Part-Time Workers Regulations prohibits part-time workers from being treated more favorably than someone working throughout the year. The Respondent’s arguments and suggested methods of calculation were therefore rejected.
So, what is the correct calculation method for ‘part-year’ workers?
Weekly pay should be calculated as set out in section 224 Employment Rights Act 1996. This previously provided for an average of the most recent 12 weeks of earnings. It should be noted that this legislation has been updated since this case started, and the current prescribed reference period is 52 weeks. Any weeks where earnings were zero (e.g. school holidays in this case) are to be ignored.
What is the impact of this decision?
The recent ruling will impact all employers who currently use the 12.07% calculation for part-year workers. This calculation has been practical until now, particularly within the education sector, but the decision in this case could leave organisations open to challenge.
Moving forward, where the 12.07% calculation gives a different result to the 52-week averaging method for part-years workers, employers will be liable for the difference.
How can Thrive Law help?
As an owner-run company, we know the pains of having to wear many hats and how time is precious. As qualified employment and HR lawyers, we know the consequences of getting HR decisions wrong. We work with you to let you focus on what you need to be doing in the business with the peace of mind that all letters and decisions are run past a qualified lawyer before you implement them.
When you partner with Thrive for outsourced HR support, we can reduce your stress and free you up to work on the business and to make HR decisions with confidence.
With people at the core of every successful business, keeping on top of the ever-changing legislation and making the most out of your people can be challenging, but we are here to help.
We can also support your business in the event an employee approaches ACAS or the employment tribunal.
Get in touch today to invest in your business and make your HR stress free. Email email@example.com
Please note this blog is for reference purposes only and is only accurate at the date it was published. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action. Please contact us if you have any questions at firstname.lastname@example.org