Holiday Pay for Part-Year Workers

In Harpur Trust v Brazel, the UK Supreme Court has made an important ruling on holiday pay. This could substantially increase costs of paid holiday for organisations who engage people to work for only part of the year, but who are kept under contract for the rest of the time.

What did they decide?

The Supreme Court confirmed that the previous decision of the Court of Appeal in this case in 2019 was correct. “In short, the amount of leave to which a part-year worker under a permanent contract is entitled is not … prorated to that of a full-time worker.”

What does this mean?

This means that workers engaged under continuing contracts, but who only work for part of the year still get the full 5.6 weeks’ statutory minimum paid holiday each year. The amount of paid holiday is not reduced even though they only work for part of the year.

Holiday pay must still be calculated at the rate of “a week’s pay”. Since April 2020 this is calculated as an average of the last 52 weeks worked and paid (or the average of the weeks worked if that is less than 52). You ignore weeks when there was no work and no pay.

So, employees and workers who are under contract, but actually work for only part of the year still get full pay for a full 5.6 weeks of holiday, even though they may work for much fewer weeks in the year.

This does not benefit those part-time employees or zero hours workers who work all year round. Part-year workers (those who work only part of the year) now get proportionately more paid holiday than employees who work all year round.

Who does this apply to?

It applies to organisations (including businesses, charities etc.) who employ people or engage casual workers to work part of the year, but not the full year.

This definitely applies to anyone on a permanent contract (such as employees of schools who work term-time weeks only).

While the judgement says it applies to workers (and employees) “under a permanent contract” there is no distinction in the regulations between permanent and temporary workers, so it probably applies to all workers under a continuing umbrella contract, including those on zero hours contracts, even if they do no work for prolonged periods of time.

It appears that that they continue to accrue holiday at the rate of 5.6 weeks of fully paid holiday each year, for all of the period they are under contract, even if they only work sporadically (say just a couple of weeks each year). In effect, holiday pay accrues all year round, even when not working.

To give an extreme example, an employee who works just one week per year will be entitled to 5.6 weeks’ paid holiday.

Can workers claim back pay?

Yes, but it is unclear how much could accumulate. The Deduction from Wages (Limitation) Regulations 2014 limit such claims to two years of arrears of holiday pay, but other case law suggests that by failing to recognise a worker’s right to paid annual leave and failing to provide a facility for the taking of such leave, the worker is entitled to carry forward any leave indefinitely.

What action should we take?

First, check how entitlement to annual leave is currently calculated for part-year workers. If you pay rolled up holiday pay (by adding 12.07% to pay) or if you give actual paid holiday which is pro-rated to the period worked during the year (for example by treating holiday as accruing at the rate of 12.07% of hours worked or on statutory leave), you may be providing less than the minimum required in light of this case.

What do we do if we have a problem?

There are three main approaches to take:

Start allocating and paying the correct holiday to all your workers, giving them all at least 5.6 weeks of holiday paid each year at the correctly calculated full rate of “a week’s pay”. This may be an expensive solution, and it could provoke historical claims going back years, but it is a solution with no risk going forward.
Consider only engaging part-year workers for specific fixed-term contracts, and only for when you actually need them at work, with gaps (when they are not under contract) in between each period of work. If there is no umbrella arrangement bridging gaps in periods of work, then they will not accumulate holiday pay in those periods when they are not working. However, this adds a substantial amount of administration, both when the working relationship is terminated (and P45s are issued) and when workers (possibly new people) are recruited and brought onto the payroll. There is also some risk of claims (e.g. unfair dismissal or discrimination) every time a contract is terminated.
Continue to use your current systems of holiday accrual which are not compliant and deal with any claims as they arise. If your employees are not unionised, they are unlikely to be aware of this case. You might take the view that, if your employees have not raised this issue since the Court of Appeal decision three years ago, they are unlikely to raise it now.

For more help, please contact Ian Pettifer: ipettifer@keelys.co.uk or 01543 420006