Supreme Court decision on rolled up holiday pay for permanent part year workers

Authored by DAS

The long-awaited decision from the Supreme Court (SC) in Harper Trust v Brazel has landed, and sadly it is not good news for those employers who engage workers on permanent part year contracts and had then worked out their holiday pay based on a 12.07% percentage of the hours worked (with the 12.07% being the percentage of 5.6 weeks statutory holiday pay).  However, it is good news for those workers engaged on this basis as they are likely to be owed back pay. 

This decision will likely have a big impact on the education sector, who usually engage staff on permanent term-time only contracts and may have then worked out holiday pay using the 12.07% method.

What does the law say?

Arising from EU law and the Working Time Regulations 1998 (as amended) UK workers are entitled to 5.6 weeks paid holiday per year as a minimum.  The 5.6 weeks is then pro-rated for part time workers who work all year round and have set hours per week.

To work out the average weekly pay for workers who do not have set hours per week, you look back at the last 52 weeks in which a payment has been made (so if there are weeks where no payment is received, you do not include these and look back further), add the payments up and divide the result by 52.  This is the sum you then use to calculate a week’s holiday pay.

What was the practice for those workers who worked part of the year?

The approach employers have taken for a worker who has a permanent contract to work part of the year (and may also have irregular hours when they work) was to pay 12.07% on the hours worked as their holiday pay.  In short, this was a way of pro-rating their holiday pay based on the number of weeks worked each year.  This was initially based on guidance from ACAS, which was rapidly changed after the EAT decision in this case.

What did the Supreme Court decide?

The Supreme Court decided that all workers are entitled to 5.6 weeks annual leave based on their average pay, regardless of how many hours they might work or how many weeks of a year they may work.

This means that whenever a worker takes leave, the employer must work out their holiday pay based on the 52-week method.

What does it mean for you?

If you are a worker who has a permanent part year / irregular hours contract, and your holiday pay has been worked out using the 12.07% method on hours worked, you are likely to be owed back pay and will need to ensure that you are paid the right holiday going forward.

If you are an employer who engages workers on a permanent part year / irregular hours contract, and you have paid that worker holiday worked out using the 12.07% method on hours worked, the worker will have a claim against you for breach of the Working Time Regulations 1998 and unauthorised deduction from wages.

This claim for this back pay could stretch back as far as the date their holiday was paid this way, as there is a question as to whether the legislation that introduced a cap on back pay of 2 years from the date of the claim for unauthorised wages claim will apply to these type of cases.  It is therefore strongly suggested that your business immediately carries out an audit to work out what the historic liability might be and ensure that holiday pay is calculated correctly going forward.