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Education HR e-briefing - Calculating holiday pay for term-time only staff

  • United Kingdom
  • Education - Briefings

16-03-2018

Introduction

The calculation of holiday pay for workers who have no normal working hours can present logistical difficulties for employers. Strictly speaking, the statutory requirement is that payment for each period of holiday taken has to be calculated based on the average pay which the worker has received in the previous 12 weeks of work. For convenience, many employers simply calculate the holiday pay as an additional 12.07% of the relevant hourly rate for every hour worked (an approach previously endorsed in ACAS guidance).

However, as the recent case of Brazel v Harpur Trust demonstrates, this calculation is not always reliable and may result in underpayments to workers who are employed on a casual or zero hours basis and do not work the full year, such as term-time or seasonal workers. This could create exposure to claims for unlawful deductions and historic underpayments, so institutions should review their approach in light of this decision.

Background

Under the Working Time Regulations 1998 (“WTR”) workers are entitled to 5.6 weeks paid annual leave, pro-rated for those employed on a part-time basis. Under regulation 16 of the WTR the amount of a week’s pay is calculated in accordance with sections 221 to 224 of the Employment Rights Act 1996 (“ERA”). Whilst holiday pay calculations should be relatively straightforward for workers with normal working hours, the position can be more difficult in other cases. Section 224 of the ERA provides that, for employees with no normal working hours, the amount of a week's pay is the amount of the employee's average weekly remuneration in the preceding twelve weeks they have worked. In arriving at this average, any weeks in which no remuneration was payable by the employer to the worker are ignored and replaced by earlier paid weeks, to ensure that the calculation is always based on 12 paid weeks.

The ACAS guidance on holidays and holiday pay suggests that, for those working on a casual basis or very irregular hours, it is often easiest to calculate paid holiday entitlement as a proportion of pay for each hour worked. The guidance suggests a calculation of 12.07% of pay for each hour worked over a year. The figure of 12.07% represents 5.6 weeks’ holiday, divided by 46.4 working weeks (being 52 weeks – 5.6 weeks holiday). The guidance suggests that someone working 10 hours accrues 72.6 minutes paid holiday (12.07/100 x 10 = 1.21 hours= 72.6 minutes).

For term-time staff, the ACAS guidance says it is useful to look at the calculations that are used for annualised hours or casual/irregular hours.

Facts of the case

Mrs Brazel was one of a number of visiting music teachers employed by the Trust. She worked at Bedford Girl’s School (“the School”) under a zero hours term-time contract. Her contract of employment stated “As a visiting teacher, requirements for your services will depend upon a varying level of demand for individual personal tuition in your subject/instrument. Demand may vary from term to term. There are no minimum hours of work guaranteed to you and you have no normal hours of work.” She was paid an hourly rate of £28.77.

Mrs Brazel was entitled to 5.6 weeks paid holiday a year, which she had to take during the normal School holidays or at such other times as were convenient for the School. A payment for accrued holiday was made to Mrs Brazel 3 times a year - at the end of April, August and December – and calculated at 12.07% of her hourly rate for the hours she had worked in each term.

Mrs Brazel argued that her holiday should have been calculated on the average weekly hours she had worked in the 12 weeks immediately preceding the end of each of the three terms – given that her holidays could only be taken outside term time. This calculation equated to a rate for holiday pay of 17.5% for each hour. On this basis Mrs Brazel claimed that she had been underpaid by £1,360.72 since 2011. The School contended that its calculations were correct because it had used the 12.07% figure suggested in the ACAS guidance.

Employment Tribunal decision

Mrs Brazel brought a claim of unlawful deduction from wages. The Employment Tribunal dismissed her claim holding that as she worked for only part of the year her entitlement should be pro-rated and this could be done by applying the 12.07% calculation. The Tribunal agreed with the Trust that to do otherwise would unfairly reward part-time workers, as a worker working 32 hours a week would receive a higher rate of holiday pay than a worker who worked the same irregular hours pattern over a “standard” 46.4 week working year (i.e. 52 weeks less 5.6 weeks statutory leave).

The Tribunal thought that words should be read into to the WTR to state “where a worker has no normal hours and works fewer than 46.4 weeks per year any such payment should be capped at 12.07 per cent of annualised hours.”

Employment Appeal Tribunal decision

Mrs Brazel appealed to the Employment Appeal Tribunal, who agreed with her and overturned the Tribunal decision. In reaching its decision the EAT concluded that:

• The exercise which the Tribunal had to carry out was a relatively simple one as Mrs Brazel’s entitlement to holiday pay was set out clearly in her contract.

• As Mrs Brazel worked irregular hours the application of section 224 of the ERA enabled a week's pay to be computed in a simple and straightforward manner using the 12 week averaging method.

• Whilst that approach could favour someone who does not work throughout the year, the EAT could not see how that justified words being read into the WTR.

• The Tribunal had overlooked the fundamental fact that, whilst part-time workers are not to be treated less favourably than full-time workers, there is no principle to the opposite effect.

• To impose a limitation which altered the ERA to the disadvantage of part-time workers, ostensibly to redress a potential grievance that might be brought by full-time workers, stood the logic and purpose of the legislation on its head.

The EAT remitted the case to the Tribunal for a remedies hearing to assess the amount of the unlawful deduction.

Comment

Using the 12.07% accrual rate is an attractive option for institutions where individuals work irregular hours. However, as this case demonstrates, that leaves the institution open to a potential claim because it does not comply with section 224 of the ERA. After all, it is the wording of the Act that needs to be applied and, as the EAT pointed out, the ACAS guidance has no statutory force.

Whilst, on the face of it, the figure of 12.07% is a logical way of calculating the average pay over a period of time where there are no normal working hours, it is based upon an assumption that the person is potentially working 46.4 weeks a year. If, like Mrs Brazel, they work term-time only, then their working weeks are compressed into a shorter period of time (in her case 32 weeks) and the ratio between working weeks and weeks of holiday is different. As a result, the 12.07% accrual method is unlikely to reflect average pay over the preceding 12 week period.

This decision will only have implications for those workers who have no normal working hours and particularly (but not exclusively) for those who work on a term time basis or intermittently throughout the year. Institutions should consider whether they have exposure to underpayments for any workers in this category and, if so, whether to take any corrective action in respect of past and/or future payments.

One practical issue will be the difficulty of calculating holiday pay on an individual basis every time a zero hours or casual worker takes holiday. In the Brazel case, holiday was deemed to be taken outside term-time, so the statutory calculation could be made 3 times a year based on average pay over the previous 12 weeks. So if institutions engage casual term-time only staff on contracts which similarly control when holiday is deemed to be taken, the calculation may be more straightforward.

If the contract, however, permits casual staff without normal working hours to take holidays during term-time, then a separate calculation would need to be made on each occasion holiday is taken. Practically and administratively this will be very time consuming, especially if there are a large number of staff engaged on such contracts. If this is the case, the institution may want to balance the risk of any claim for underpayment against this extra burden.

In summary, the impact of this decision on institutions will very much depend on the detail of their contractual arrangements with each group of staff engaged on a “no normal working hours” basis. We’d be very happy to help with the assessment of exposure to claims and the options for dealing with the impact of this decision.

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