Holiday Pay Zero Hours Workers

Employers should be aware of a significant change in how holiday pay for hourly paid irregular hours workers is calculated.

Following the recent Supreme Court decision in Harpur Trust v Brazel clarifies the position on how holiday pay for irregular workers on permanent contracts should be calculated.

Who is impacted by this decision?

This judgment will impact the holiday pay calculation for workers on permanent contracts who have irregular working patterns where their pay corresponds to those irregular hours.

As such, only workers with no normal working hours and who are paid on an hourly or daily basis will be impacted. It is likely that the definition of ‘permanent’ contracts will be open to debate.

This means that the decision does not impact full-time workers, part-time workers with regular hours, or any worker with a fixed salary.

Calculating holiday pay for workers with irregular hours

The Working Time Regulations (WTR) provide that a full-time worker is entitled to 5.6 weeks paid holiday. The amount of pay for that holiday depends on the average weekly pay.

For workers with no normal working hours, holiday pay is calculated based on the average earnings of a 52-week reference period. Any week in which the worker did not get paid is ignored.

A method which was previously utilised for calculating holiday pay for those with atypical hours was the ‘12.07% method’.

This method was recommended in the ACAS guidance until recently and was regularly adopted by a large number of employers.

However, what is clear from the Supreme Court’s decision, is that employers can no longer calculate holiday pay for workers with irregular working patterns using the 12.07% method.

Following this decision, for permanent workers with irregular hours, holiday pay should be calculated by looking at the work that the worker has undertaken across a 52-week reference period, discounting the weeks in which the worker did not receive any pay, then calculating their average week’s pay across the 52-week period, and then multiplying it by the 5.6 weeks’ annual leave entitlement.

This means that part-year workers should not have their holiday entitlement pro-rated. This has the potential to produce some bizarre results. For example, an employee who only works one week per year but is on a permanent contract (e.g. an exam invigilator) may be entitled to only one week’s pay for the work completed but could be entitled to 5.6 weeks’ holiday pay.

Comments

Employers will now need to consider how to comply with the judgment and adopt the correct holiday pay calculation going forwards if they do not.

It is also worth employers considering whether to move away from engaging workers on permanent contracts with irregular hours. For example, an employer may wish to engage workers on fixed-term contracts for a specific period of time to avoid this issue.

It is important to note that the Supreme Court’s decision does leave a lot of questions unanswered.

HMRC has launched a consultation with an end date of March 2023 to see how the extremely onerous task of calculating holiday pay can be eased.