Thu 05 Apr 2018

Holiday pay for workers with irregular hours

Should holiday pay be pro-rated to ensure full time workers are not in a worse position than part timers?

Holiday pay has taken up a lot of employment tribunal time over the past couple of years.  The case of  Brazel v Harpur Trust is yet another case looking at the calculation of holiday pay, this time relating only to those working with irregular hours.

The case relates to a part time music teacher.  She had a contractual right to 5.6 weeks holiday in compliance with her statutory right.  She was required to take her annual leave during the school holidays and was paid her accrued holiday three times a year in April, August and December.  The School calculated her holiday pay by multiplying the number of hours she had worked in the preceding term by 12.07%.  That calculation derives from the fact that the standard working year is 46.4 weeks (52 weeks less the 5.6 week holiday entitlement) and 5.6 weeks is 12.07% of 46.4 weeks. This is in accordance with ACAS guidance on statutory holiday entitlement.  This method of calculation meant that the amount of paid holiday received by the teacher was pro-rated compared to full time staff.

However, under regulation 16 of the Working Time Regulations and section 224 of the Employment Rights Act, the holiday pay of a worker with irregular hours is calculated by averaging earnings over the 12 week period ending with the leave beginning.  Any weeks where no work is undertaken are ignored for the purposes of the calculation.  This method of calculating means that a worker who only works part of the year may receive the same amount of holiday pay as a part time worker who works irregular hours every week of the year, and also means the former will receive a proportionately greater amount of paid holiday then their full time colleagues too.

The Incorporated Society of Musicians (ISM) challenged the basis of the calculation being used by the School because she received less, as a result of the application of the 12.07% multiplier, than she would have had the statutory basis for the calculation been used.  When this was unsuccessful a claim for unlawful deduction from wages was made. 

The claim was dismissed by the Employment Tribunal finding that it was correct that a part-timer who only works part of the year should have the 5.6 weeks holiday entitlement pro-rated.  Accordingly, the application of the 12.07% multiplier by the School was acceptable.  This approach avoided workers who worked all year from being less favourably treated.  The Tribunal therefore read into regulation 16 of the Working Time Regulations that holiday pay should be capped at 12.07% of annualised hours for a worker who has no normal hours and works less than 46.4 weeks per year.

However, the EAT allowed an appeal.  While undertaking the statutory calculation could result in a windfall for those who work fewer weeks during the year the Judge did not accept that this was a reason to read down regulation 16.  The purpose of the Part Time Workers Regulations was to protect part-timers from less favourable treatment, it did not provide a similar protection for full timers. 

Employers should check that they are calculating holiday pay for the workers with irregular hours on the basis of the statutory calculation.  While this may result in a windfall for some, unless or until the matter is appealed, application of the 12.07% multiplier - effectively capping the amount of holiday pay - runs the risk of unlawful deduction claims being made. 

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