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Employers must stop using 12.07% to calculate holiday pay for part year, permanent workers
After years of legal battles extending through the entirety of the UK Justice System, the Supreme Court has (finally) ruled that workers that only work part of the year (such as term-time and casual workers) are entitled to the holiday pay calculated on a similar basis as colleagues working all year.
The recent decision of the Supreme Court in the holiday pay case of The Harpur Trust vs Brazel is hugely important and will have significant financial repercussions for employers who engage workers that only work part of the year.
The 12.07% method
Workers are entitled to a minimum of 5.6 weeks holiday per year. A year is made of (roughly) 52 weeks which, once you take away 5.6 weeks, leaves 46.4 working weeks in a year. 5.6 is 12.07% of 46.4. 12.07% is therefore a worker’s entitlement to holiday expressed as a percentage of working time.
This works out as just over 7 minutes holiday entitlement for each hour worked.
The 12.07% method has been applied by employers to calculated holiday as a percentage of hours worker, paid at the worker’s normal hourly rate.
The 12.07% multiplier had been recommended in, now deleted, government guidance and an Acas advice note, so many employers have been happily using that method to calculate holiday entitlement and pay.
What Brazel makes very clear, is that this 12.07% method is no longer acceptable for calculating holiday pay or entitlement for permanent workers who only work part of the year.
The Harpur Trust v Brazel
Ms Brazel was a music teacher on a term-time only contract. She was entitled to 5.6 weeks of annual leave a year, which she took in three blocks of 1.87 weeks - taking a period of holiday in each of the winter, spring and summer school holidays.
Her employer, The Harpur Trust, adopted the 12.07% methodology when it came to paying her for holiday taken. Ms Brazel argued that was incorrect, and that instead she should have been paid at the rate of 1.87 x her average weekly pay for each period of holiday; which amounted to significantly more holiday pay than she received using the 12.07% methodology.
The Supreme Court agreed with Ms Brazel. There is no further legal recourse so it is clear that for permanent workers and employees who work part of the year, employers must not use the 12.07% method to calculate holiday entitlement or pay.
How to calculate holiday pay
Holiday entitlement and pay remains complex, particularly for atypical workers. What this case has confirmed is how pay should be calculated for permanent workers/employees who only work part of the year (not to be confused with part-time employees):
- An employer should first calculate the average weekly pay in the 52-week period immediately prior to the period of holiday taken, ignoring weeks with no pay. This involves totalling pay received throughout the last 52 weeks in which work was performed (i.e. weeks in which no work was performed and no pay was received should be discounted), then dividing that total by 52;
- The weekly average should then form the basis of the calculation of holiday pay for that worker/employee.
What should employers do?
The Harpur decision could result in claims for historic liability (looking back 2 years), so employers who have used the 12.07% method for part year workers may wish to carry out an audit to assess any potential liability, as well as looking to amend their practices moving forward.
The Supreme Court emphasised that this decision applies to permanent employees, however it could encourage casual workers to attempt the same argument, so a similar audit for casual workers might also prove useful to employers.