The Court of Appeal has added an important caveat to the well-known rule of thumb for calculating holiday pay for casual workers. In Tuesday’s ruling it said that the most commonly used calculation – which takes holiday pay as payable at the rate of 12.07% of the amount earned – does not apply to part-year workers (ie workers who have a permanent contract but only work for part of the year).
The most obvious example of a part-year worker is term-time only worker. This latest test case was brought by Ms Brazel, a clarinet and saxophone teacher, who was engaged by a private school to provide music lessons during term time. Although she was an employee with a permanent contract which ran throughout the year, she was engaged under a zero-hours contract and paid an agreed hourly rate for the hours she worked. At the end of each term, the school paid her holiday pay at the rate of 12.07% of the total amount she had earned that term. That ratio was calculated on the assumption that her annual holiday entitlement of 5.6 weeks accrued evenly during the remainder of the year (46.4 weeks) and was therefore equivalent to 12.07% of the total hours worked.
Ms Brazel argued that instead, her holiday pay should have been calculated by multiplying her holiday entitlement in weeks by the average weekly pay she had received in the previous 12 weeks. This is the reference period stipulated in the Working Time Regulations for workers without regular hours of work and would have produced a significantly higher amount of holiday pay – more like 17% of her term-time earnings.
The employment tribunal dismissed her claim, but this decision was overturned by the Employment Appeal Tribunal last year. The employer’s appeal has now been dismissed by the Court of Appeal. This decision sheds light on two important aspects of the Working Time Regulations which are sometimes overlooked:
- Firstly, except in the first and final years of the worker’s engagement, the Regulations do not assume that holiday pay accrues at a steady rate throughout the year. That is one reason why the employer’s approach in this case – which ignored the effect of Ms Brazel’s hours being compressed into certain parts of the calendar year - was wrong.
- Secondly, there is no general pro-rata principle for part-time workers under our domestic law. Instead, the Working Time Regulations express holiday entitlement in weeks and fractions of a week, not days or hours. That does have the effect of pro-rating the entitlement of part-time workers on regular hours who work throughout the year (though there are some complications over bank holidays). But it doesn’t operate to reduce the annual holiday entitlement of workers like Ms Brazel, whose contract continues throughout the year, but are only required to work for part of it.
What this decision means in practice is that part-year workers will normally be entitled to a higher proportion of their hourly pay by way of holiday pay than workers who work throughout the year.
In April next year the Working Time Regulations will be amended to change the reference period of 12 weeks for workers without regular hours to 52 weeks. That would not have changed the calculation materially in Ms Brazel’s case, since weeks where no work is done will continue to be discounted.