New plans will allow employers to pro-rate holiday for term-time and casual workers
Last year the Supreme Court in Brazel v Harpur Trust said that all workers on permanent or continuous contracts must receive 5.6 weeks paid holiday each year, even if they only worked for part of the year. Between 320,000 and 500,000 permanent term-time and zero-hours contract workers were expected to receive additional holiday as a result of this decision. And, approximately 37% of these are workers in the education sector, such as teaching assistants who are employed on part-year contracts.
This meant that part-year workers are entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year. The government believes that this outcome is unfair (a sentiment shared by many of our clients). It intends to amend the Working Time Regulations to allow employers to pro-rate a worker's holiday entitlement to reflect the number of days/weeks they actually work each year. And, it wants to make the law easier to understand and follow.
It has launched a consultation, setting out its plans, which you can access here.
What will change?
The government intends to introduce a 52 week holiday reference period for part-year workers and those with irregular hours and will allow employers to use a mathematical short-cut to work out their entitlement based on 12.07% of the number of hours they work.
If implemented, employers will have to:
- Calculate the total hours a worker has worked in the previous 52 weeks (this is the reference period), including weeks where they don't work; and
- Multiply the total hours worked by 12.07% to give the worker's total annual statutory entitlement in hours
Expressed as a calculation, it is:
Hours worked in previous 52 weeks x 12.07% = annual statutory entitlement in hours
There is another way to reach the same answer. Employers can divide the total hours worked by 46.4 and multiply it by 5.6. This approach was commonly used in the education sector.
This will make working out holiday entitlement much easier for employers. But it's questionable whether it provides a fair result for workers whose hours vary from one year to the next. For example; if a worker works 800 hours in year 1, their holiday entitlement for year 2 will be 96.56 hours. If they substantially increase their working hours to 1500 in year 2, they will get less holiday than would if accruing leave on that actual working year (and not enough for rest and recovery). Although they will get the benefit of those additional hours in year 3, if they leave employment before the start of year 3, they won't be compensated for the untaken holiday.
What is the 12.07% calculation based on?
Full-time workers are entitled to 5.6 weeks statutory holiday each year. This means that they work for 46.4 weeks a year (52 minus 5.6 weeks). 12.07% represents 5.6/46.4 as a percentage.
What calculation should we use if we offer additional contractual holiday?
12.07% only applies where you provide statutory holiday. If you offer additional contractual holiday, you will need to adjust the percentage you apply to account for this.
For example: Full-time workers receive 5.6 weeks holiday plus 8 additional days = 36 days/7.2 weeks. This means that they work for 44.8 weeks a year (52 minus 7.2 weeks) and 17.41% represents 7.2/44.8 as a percentage.
How would holiday entitlement be worked out for workers who don't have 52 weeks service?
The 52 week holiday reference period assumes that a worker has been in employment for at least 52 weeks. The government intends to tweak the existing arrangements which provide employees with 1/12th of their annual holiday entitlement at the start of the month. That works perfectly well for workers who have fixed hours of work because their holiday calculation can be done in advance. But it doesn't work for those workers whose hours of work vary. The most an employer can say is that they will receive 5.6 weeks holiday (or such additional entitlement that they provide) pro-rated to reflect the number of hours they work. Workers don't know how many hours of holiday they will receive which may make it difficult for them to plan ahead.
To resolve that difficulty, the government intends to allow employers to calculate their holiday entitlement at the end of each month, based on the number of hours they have worked that month.
Expressed as a calculation, it is:
Hours worked in previous month x 12.07% = monthly statutory entitlement in hours
Employers will be able to offer more generous terms and can, for example, allow staff to take more holiday than they have accrued.
Will holiday pay calculations change?
No. These changes only impact the amount of holiday workers are entitled to - not the way their holiday pay is calculated which is set out in s221-224 of Employment Rights Act 1996.
To work out the holiday pay of workers without fixed hours of work, you will still have to go back 52 weeks to work out the weekly average rate of pay excluding weeks where they haven't earned any money. This calculation has to be done every time the worker takes a holiday.
What rules will apply to agency workers?
Agency workers work under a number of different arrangements. Currently, if they have a contract for services with an employment business or with an umbrella company, they may be entitled to 5.6 weeks holiday even if they don't work throughout the year. The government wants to change this and treat them in the same way as any other casual worker. This means that they will only accrue holiday when they are on an assignment - and holiday will accrue at the end of each month worked, based on their total number of working hours multiplied by 12.07%.
Agency workers who have a contract with an agency or umbrella company that is longer than a year, or are on one assignment that lasts longer than a year, will have their holiday entitlement calculated using the 52 week reference period.
How to respond
We some concerns about these proposals and will be submitting a response. If you would like us to include your views, please let me know by 1 March. The deadline for responses is 9 March. If you'd prefer to respond directly, you can do so online here.
When will these changes come into force?
Not yet. The government will need time to consider replies to the consultation. It has said that it will publish its response in 'due course'. It's certainly possible that it will introduce legislation this year. We'll keep you posted.
What should you do now?
That will depend upon whether you have already made changes to the contracts of employment of your term-time and casual hours staff to reflect the Brazel decision, and your approach to risk. What is right for you will depends on a number of factors and we recommend that you take your own legal advice.
- If you haven't implemented the Brazel decision you could adopt a wait and see approach. However, that doesn't get around the problem of ongoing and backdated claims. These proposals do not suggest that the law will apply retrospectively (and it's difficult to see how it could). This means that employers who have underpaid staff will still have ongoing liabilities. Take advice if you receive grievances from staff or from a union representing them alleging that they have been underpaid because there are a number of factors to consider before responding.
- If you have changed your contracts to implement the Brazel decision, you can't reduce the amount of holiday your staff receive without consultation and going through a process to change their terms and conditions. That won't be easy as your staff are unlikely to agree to receive less paid holiday. It's not without risk and you'll need to take advice. In terms of timing, you won't be able to make any changes until these proposals become law.
- If you're currently making changes that arose from the Brazel decision, you may be able to build in flexibility in their contracts of employment which will allow you to legally reduce the amount of holiday they receive if the law changes. Take advice on this.
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