The Government has published a consultation paper on proposals to deal with the impact of the Supreme Court’s decision in Harpur Trust v Brazel that employers cannot calculate holiday pay for part-year (eg term time) workers as 12.07% of the hours worked. Part-year workers are instead entitled to 5.6 weeks of paid annual leave calculated using a 52-week reference period to determine their average weekly pay, ignoring any weeks in which they did not receive any remuneration. The impact of Harpur is that part-year workers are entitled to a greater holiday entitlement than part-time workers who work the same total number of hours across the year. Workers who work only a few weeks in a year receive the largest increase in holiday disproportionate to the hours worked.
The Government proposes to address this disparity by replacing the 52-week reference period which ignores weeks in which no work is performed, with a 52-week reference period which includes weeks in which no work is performed. This would ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working during the year.
At the beginning of a new leave year, the worker’s holiday entitlement would be calculated based on previous 52 weeks. This would give a worker a fixed pot of annual leave that they would then be able to draw from throughout the leave year.
A significant benefit of this method is the clarity it would provide to workers on irregular hours and their employers on holiday entitlement. Although this entitlement would be based in part on their working pattern almost two years prior, this is the simplest approach for employers and workers as entitlement would be agreed at the beginning of each leave year.
The 52-week holiday entitlement reference period assumes that a worker has been in employment for at least 52 weeks. There would need to be a system for workers in the first 12 months of a job whilst their reference period builds up. Under regulation 15A of the WTR, workers in the first 12 months of a job effectively receive 1/12th of their annual holiday entitlement at the start of each month. This is easy to calculate for workers with fixed hours or working patterns, as their annual holiday entitlement is usually expressed in weeks or days. A similar approach could be used for workers with irregular hours, although holiday entitlement would need to be calculated at the end of each month based on the actual hours worked in that month to be proportionate to the time worked. This accrual-based system would only be required for the first year of employment until the 52-week entitlement reference period could be used. This can be expressed as a simple calculation: Hours worked in previous month x 12.07% = monthly statutory entitlement in hours Employers could use their discretion to allow a worker to take more annual leave than they had accrued in advance
If a holiday entitlement reference period is introduced, there would need to be a way to calculate how much holiday a worker with irregular hours would use to take a particular day off. There are two methods to calculate this: The first method is to use the reference period to calculate a flat average working day. When a worker took a day off, they would take off the number of hours calculated from this average working day. This could potentially create incentives for workers to take particular days off as holiday, to maximise their holiday pay whilst minimising their time off work. By requesting to take leave on days where they would have worked below the average number of hours, workers could potentially be paid more for a day than if they have worked it. For similar reasons it could also create incentives for employers to prevent workers taking leave on such days. This is the Government’s preferred method. The second method is to use the reference period to calculate the average hours worked for specific days. For example, to work out the amount of holiday it would take to have a Monday off from work, employers would calculate the average hours that a worker worked each Monday in the reference period.
The consultation closes on 9 March 2023.