The Supreme Court has provided guidance on the way in which UK employers must calculate holiday pay for “part year workers.”
The Court held that workers who are only employed for part of the year, but whose contract lasts for the full year, are entitled to a full years’ worth of statutory holiday entitlement, 5.6 weeks.
The employer in the case argued that such workers should have their holiday reduced on a pro-rata basis to take into account the weeks that they do not work. This was rejected.
The case involved a music teacher who worked on a term-time only contract. Originally her employer had calculated her holiday pay by multiplying her average weeks pay by 5.6 (now confirmed to be the correct way). This was then changed so that her holiday pay was calculated using 12.07% of her pay for hours worked each term (taking into account that she only worked 32 weeks a year), meaning she received less holiday pay that under the previous method.
The Supreme Court has now confirmed that all workers, full-time, part-time and part-year are entitled to 5.6 weeks each year. They have clarified that the only pro-rata calculations which are now necessary, are those in relation to the calculation of a weeks’ pay for holiday pay purposes.
We know that many employers will see this as yet another victory for employees and will be quite rightly concerned about what impact this will have on them and what this actually means in practice.
In simple terms, this case has provided some clarity in relation to how to calculate holiday pay correctly. As an employer, you must calculate an average weeks’ pay using a 52 week reference period, ignoring any weeks not worked, or the length of time they have worked for you if it is less than 52 weeks.
This case will have significant implications for any employers who have continued to use the 12.07% method, or who have people under contract for the whole of the year but who only work part of it, who may now be subject to claims for underpayment of holiday pay. You may need to update your contracts of employment.
If you are concerned about claims for backdated holiday pay, it is vital to ensure that you implement the correct method of calculation straight away in order to mitigate claims. Claims for holiday pay are limited to 2 years and you can rely on the ruling that any break of more than 3 months between payments will break any chain of unlawful deductions.
You have other options to minimise the financial impact moving forward. If you have people who only work for you part of the year, you may want to consider the use of freelance contracts or temporary contracts. You may also wish to consider engaging people on an assignment basis so that each engagement is terminated at the end of that period, and they can then be paid any accrued but untaken holiday for that period on termination.
The rules regarding holiday pay calculations can be complex, so get in touch if you need guidance on your obligations.
