A recent employment tribunal decision has demonstrated that many employers may be calculating holiday pay incorrectly for casual workers. This is an area of great confusion for many and the recent case of Brazel v The Harpur Trust has demonstrated that use of the 12.07% shortcut (even though this was recommended by ACAS) may not be correct. The case was that of a teacher who was engaged on a zero hours contract.
Where someone works irregular hours, section 224 of The Employment Rights Act 1996 requires you to base their holiday pay on average earnings in the 12 weeks before they take the holiday (Ignoring any weeks not worked). Many employers use an accruing rate of 12.07% of the hours that they have worked. The calculation is based on dividing the standard 5.6 weeks annual leave by the remaining 46.4 weeks in the working year.
In the case, Ms. Brazel’s hours fluctuated from week to week and she worked mainly in term time. Her employers paid her 12.07% of the hours worked in each term, adding the money to her March, August and December pay. Ms. Brazel argued that her employer failed to use the 12 week averaging and this led to an underpayment of £1360 over 3 years. In her tribunal, the judge sided with the employer however in the appeal the tribunal’s decision was overturned, deciding that the 12-week method should be used. It acknowledged that this could result in more favorable payments for part-time workers however they also pointed out there is nothing in the Part-Time Workers Regulations 2000 to prohibit MORE favorable treatment.
So what should you do?
If you use the 12.07% method you should consider whether you need to switch to the 12 week average method. Look at your seasonal workers and those on term time and annualised hours.
Assess the scale of any past underpayments. Remember workers can bring claims for backdated holiday pay for 2 years so you may need to account for any potential disputes or decide to make a payment for this up front.
If the 12.07% rule is not leading to underpayments and you decide to continue to use it, ensure you assess this regularly for any changes.
Avoid rolled up holiday pay, whereby you add 12.07% to a workers hourly rate. Under the Working Time Directive, workers have a right to take paid annual leave not to simply get an amount that equates to that in monetary terms. You could designate weeks where the worker is not required as annual leave and pay the worker as normal for these weeks or allow your worker to book holidays within parameters outlined in your absence policy.
As a note, the 12 weeks is currently under review with a proposal that the calculation period be increased to 52 weeks!
If you have any concerns or questions please contact us on 01325 288299 (option 2).