The calculation of annual leave for variable hour workers: Harpur Trust vs Brazel

There has been a recent case surrounding the calculation of annual leave that went right through the employment tribunals, appeals courts and ultimately to the Supreme court to determine whether the accepted measure of calculating annual leave was legally correct.

We asked Peninsula, the providers of our Employment Law and Health & Safety advice, to explain to us more about the case and what this means for Carer employers moving forward.

“Brazel (the employee) was employed on a permanent zero-hours term-time contract. This means she would only work during school terms (typically 32-35 weeks per year) and was not guaranteed minimum hours; her working time varied depending on the needs of business. Brazel was given 5.6 weeks’ annual leave which had to be taken during the school holidays. Since the school holidays are longer than the 5.6 weeks’ her employer did not designate any particular parts of them as statutory leave. Instead, it made three payments in lieu of holiday in respect of each term, in December, April and August.

ACAS guidance at the time suggested that, for workers with casual or irregular hours, holiday entitlement could be calculated as 12.07% of hours worked. This was on the basis that 5.6 weeks is 12.07% of a year (the “12.07% Method”). The employer will then pay the normal hourly rate for that holiday, as and when it is taken.

The case went through all levels of the Employment Tribunals and Appeals Courts but for reaching The UK Supreme Court (UKSC). The UKSC confirmed that the 12.07% Method should not be used for any holiday calculations. Instead, all workers are entitled to receive 5.6 weeks paid annual leave, regardless of how many weeks per year they work. This means term-time, zero-hours and casual staff should all get 5.6 weeks’ leave. When calculating pay for this leave, employers should take an average of their weekly earnings over the previous 52 working weeks.

What does this mean for me?

If your employees work every week of the year on a permanent basis the judgment will have little impact, as there is already no need to pro-rate leave or entitlements. However, if you utilise term-time, zero-hours or variable-hours contracts, where workers don’t work every week of the year, you might have to change the way you calculate their holiday entitlements. You will no longer be able to pro-rate leave based on working hours, or use the 12.07% method to calculate leave and pay accrual. Instead, you should make sure all staff get 5.6 weeks’ leave per year. This does, in practice, mean an employee who works for 30 weeks of the year gets the same annual leave entitlement as someone who works 52 weeks per year.

Do I have to increase leave entitlement?

Yes, if leave entitlement has previously been pro-rated, you must make sure this is increased so employees get 5.6 weeks’ leave per year.

How should I calculate holiday pay?

Holiday pay should be paid at the normal rate of pay. Where weekly pay varies (for example, for workers on a zero-hours contract), you should calculate holiday pay based on an employee’s average weekly earnings over the previous 52 paid weeks. The reference period must only be weeks for which the worker was actually paid. It must not include weeks where they were not paid as they did not work. It should also not include any weeks where “normal” pay wasn’t given, for example, because they were on sick leave so given sick pay. You can go back for a maximum of 2 years (104 weeks) to obtain the relevant 52 weeks’ pay data. If the employer does not have 52 weeks data from the previous 104 weeks, then the reference period becomes the number of weeks’ worth of data available.

What might this calculation look like in practice?

Add earnings from previous 52 working weeks / 52 = average weekly pay for holiday period = average weekly pay x no. weeks’ holiday. For example, if an employee’s average weekly pay is £100 and they want to take 2 weeks’ holiday: £100 x 2 = £200 holiday pay This calculation should be re-done at the beginning of every holiday period.

In summary…

Remember, if you’re a Fish Insurance policyholder, you might have access to HR support from Peninsula themselves. This benefit is included in Care Protect, Healthcare Protect, and Independent Living Full Cover policies.

If you have any questions about the change interpretation of legislation, how this will impact you and what to do going forward please don’t hesitate to call Peninsula on 0344 892 2480 – (charged at local rate/ free with inclusive minutes on mobile packages) quoting your policy number. This service is available 24 hours per day.

This advice was provided by Peninsula on 1st December 2022.