95: Employment Appeal Tribunal clarifies holiday pay calculation for employees with no normal working hours

Under the Working Time Regulations 1998 (WTR), workers are entitled to a minimum of 5.6 weeks’ paid annual leave.

A week’s leave is not defined and can be difficult to apply to workers with no normal working hours. However, the usual approach is to say that a worker accrues holiday entitlement at the rate of 12.07% of hours worked.

This is based on a standard working year of 46.4 weeks (52 weeks less statutory holiday entitlement of 5.6 weeks); and 5.6 weeks is 12.07% of 46.4 weeks. The WTR specify that holiday pay is a week’s pay for each week of leave, calculated according to sections 221 to 224 of the Employment Rights Act 1996 (ERA). For a worker with no normal working hours, the ERA specifies that a week’s pay is the average weekly pay in the 12 weeks before leave is taken (section 224). In the recent case of Brazel v Harpur Trust, the Employment Appeal Tribunal (EAT) considered how to calculate holiday pay for a teacher who worked under a zero hours, term-time contract.

Mrs Brazel, a music teacher, was entitled to 5.6 weeks’ paid annual leave which she was required to take during school holidays. Her holiday pay was paid in three instalments at the end of each term, calculated at 12.07% of hours worked in a term. Mrs Brazel brought a claim for unlawful deductions from wages, arguing that her holiday pay should be based on her average earnings over a 12 week period immediately before holiday was taken, as required by section 224 of the ERA. This would result in her receiving a higher percentage of earnings as holiday pay (17.5% if she worked 35 weeks in the year). Her employer argued that her holiday pay should be based on the number of weeks actually worked, otherwise she would be unfairly rewarded.

The Employment Tribunal rejected Mrs Brazel’s claim, agreeing with her employer that holiday pay for part-time workers who worked fewer than the standard full working year of 46.4 weeks should be pro-rated and capped at 12.07% of annualised hours. The Tribunal held that words should be read into the WTR to that effect.

However, on appeal, the EAT disagreed. It noted that section 224 of the ERA provided a straightforward means of calculating a week’s pay by working out Mrs Brazel’s normal week’s pay based on the pay received in the 12 week period prior to her taking annual leave. Whilst this method of calculation favoured workers who did not have a standard working year, there was no requirement to pro-rate holiday pay for part-time employees to ensure that full-time employees were not treated less favourably, or to avoid a ‘windfall’ for term-time only workers.

As the EAT pointed out in this case, the WTR clearly stipulate that the week’s pay provisions in the ERA are to be used to calculate holiday pay. For employees working variable hours, this means that the common practice of using the 12.07% rate or of increasing hourly rates by 12.07% for rolled up holiday pay is not correct. The EAT recognised that this would favour employees such as Mrs Brazel who do not work throughout the year, but found that the legislation is unambiguous. In order to avoid claims for unlawful deductions from wages, employers who engage workers with atypical working patterns should be evaluating whether holiday pay calculations need to be amended.