Support from the STA network: Holiday Pay – Employment Law Update and FAQs from Anderson Strathern

Employment solicitor Emily Campbell of Anderson Strathern LLP discusses how the Supreme Court has reached a decision which could greatly affect employers of part-year workers in the case of Harpur Trust v Brazel.

Who is affected?

Employees and workers who work for part of the year under a permanent or continuous contract with irregular hours, such as term-time only workers, seasonal workers, bank staff, zero-hour contracts and workers engaged under umbrella contracts.

What has changed?

Part-year workers will be entitled to a minimum of 5.6 weeks of annual leave. Their holiday pay will be calculated using the average of the preceding 52 weeks’ pay. If no pay was paid in any week, you are able to count back another week, so the rate is based on 52 weeks in which pay was paid. You can count back a maximum of 104 weeks.  If the employee has less than 52 weeks of pay, you should use the average pay rate for the full weeks they have worked.

The rate of 12.07% of total hours, which has commonly been utilised to calculate holiday pay, is no longer best practice and ought not to be used.

Employers should review the arrangements used to calculate holiday pay and speak to their payroll provider about this.

Disproportionately high?

In cases where an individual works for only a few weeks’ in a year, this can cause a rather extreme situation. The holiday pay received could work out as a higher percentage of the total pay received over the year than would apply to a full-time worker.

Full-time and part-time staff may feel annoyed that staff who only work for part of the year are being paid at a higher rate of their annual salary when on holiday. Employers might need to have difficult conversations and discuss the reasons behind the change.

Should employers back pay employees’ pay?

We will likely see an increase in employment claims for unlawful deduction of wages relating to holiday pay for part-year workers. Employers could consider their potential liability by analysing whether any current or previous workers have been underpaid and, if so, by how much. Claims for back pay are generally capped at two years’ (although there are some exceptions). A claim needs to be brought within three months of the last ‘deduction’ and there are relevant legal arguments which could potentially be utilised by employers, depending on the facts of the situation.

Mitigation of higher costs?

Employers should consider whether they could place part year workers on fixed terms contracts, so that holiday pay does not accrue in-between contracts. However, it is essential to note that, regardless of what an employees’ contract says, they could perhaps argue that their employment continued between fixed term contracts, especially if the employee returns to do the same work annually. The employment contract must genuinely reflect the employment relationship between the employer and worker.

What if employers cap leave beyond the 5.6 weeks?

If you cap leave at 5.6 weeks for part-year and/or part-time workers in circumstances where you provide additional leave to comparable full-time members of staff, you may breach the Part time Workers (Prevention of Less Favourable Treatment) Regulations 2000. However you can cap any additional leave as long as comparable full-time members of staff only receive 5.6 weeks’ paid holiday.

If you have questions or concerns about holiday pay or indeed another employment topic, we advise contacting an employment lawyer for advice. You can contact Emily Campbell (Emily.Campbell@AndersonStrathern.co.uk) or reach out to your usual Anderson Strathern contact if you would like to discuss a specific issue.

This article has been prepared by leading law firm Anderson Strathern LLP in August 2022. The information in this paper should not be relied upon by any person or treated by any person as a substitute for specific advice of any nature relevant to their circumstances. Subject to applicable law, Anderson Strathern LLP explicitly excludes any liability for any loss (of whatever nature) which may arise from any reliance by any person on any content, information or opinions published in this paper.