402: How will the Government tackle holiday pay disparity?

In early 2023, the Government published an eight-week consultation on proposals to allow holiday entitlement for part-year and irregular hours workers to be pro-rated based on their total annual worked hours. This follows the 2022 Supreme Court decision in Harpur Trust v Brazel which has created a disparity in the way these workers are treated. Part-year workers are permanent workers who are employed for the whole year, but only work for some weeks and not others, such as school music teachers.

The Working Time Regulations 1998 (WTR) do not expressly set out how to calculate holiday entitlement for part-year workers on permanent contracts, or how to calculate holiday entitlement in days or hours for workers with irregular hours. In Harpur Trust v Brazel, the Supreme Court ruled that the WTR does not allow the 5.6-weeks annual holiday entitlement for part-year workers to be reduced to take account of the periods when they do not work. This means that part-year workers are entitled to disproportionately more holidays than part-time workers who work the same total number of hours but in a fixed working pattern across the year. The Government estimates that 320,000 to 500,000 part-year, casual and zero-hours workers are entitled to more holidays as a result of the judgment.

This consultation sought views on the implications of the judgment for different sectors and set out the Government’s proposals to resolve the current anomaly:

• Employers will be permitted to prorate holiday entitlement for part-year workers so that they receive holiday leave in proportion to their total annual worked hours;
• a new fixed reference period will apply to part-year and irregular hours workers. Holidays will be calculated at the beginning of the leave year based on hours worked, rather than weeks, over the previous leave year. The Government believes this will be clearer than a rolling reference period which is recalculated every time a worker takes a holiday;
• holiday entitlement will be worked out in hours at the start of the leave year, calculated as 12.07% of the hours worked in the previous 52 weeks. The 12.07% is derived from 5.6 ÷4, where 5.6 is the statutory annual leave entitlement under the WTR and 46.4 is the number of weeks in a year after that statutory entitlement is deducted (52 – 5.6);
• the consultation includes a proposal to calculate the length of one day’s holiday for workers with irregular hours. A day’s holiday will equate to a “flat average day”, based on the average length of a working day over the 52 week reference period;
• an alternative method which is not favoured by the Government would be to calculate the average hours worked on specific days of the week. For example, a holiday taken on a Monday would be based on the number of hours worked on an average Monday, based on all Mondays in the reference period;
• in the first year of employment, an accrual system will apply. At the end of each month workers will accrue a statutory leave entitlement of 12.07% of the hours worked in that month; and
• the Government estimates that 80,000 to 200,000 agency workers are also affected by the Supreme Court’s judgment. Since a 52 week reference period is likely to be impractical for these workers, separate rules are proposed. Agency workers will accrue leave every month at 12.07% of hours worked in that month. Leave could be taken during an assignment, or paid in lieu at the end of an assignment. No leave would accrue between assignments.

While clarity on this issue is welcome, there are some areas of difficulty that were not addressed in the consultation. For example, the definitions of ‘part year’ and ‘irregular hours workers’ have not been clarified, and there is no mention of holiday accrual for workers who are on maternity or other family-related leave. The proposals may also result in unfairness where workers’ hours increase from one holiday year to the next. Although the Government has reacted relatively quickly to the Harpur Trust decision, we do not yet have a timescale for any subsequent legislative changes.

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