A recent decision of the Employment Appeal Tribunal (EAT) casts doubt on the practice of employers fulfilling their obligations to allow paid annual leave to casual workers by providing for holiday accrual at the rate of 12.07% of hours worked.

Facts

Brazel was a part-time music teacher, retained on a zero hours contract.    She worked mostly during term-time and her hours fluctuated weekly.  She had a contractual right to 5.6 weeks’ paid holiday, mirroring her statutory right,  and she was required to take holiday during school holidays.

By way of holiday pay, Brazel was paid 12.07% of the actual hours worked each term at the end of the term, so she received holiday pay three times a year in her March, August and December pay packets. The employer took this approach based on the ACAS guidance on holidays and holiday pay for casual workers, rather than calculating holiday pay based on the normal rate of pay averaged over the 12 weeks prior to holiday being taken, which is the methodology required by the Working Time Regulations.

The Employment Tribunal upheld the employer’s approach. It decided that a principle of pro-rating should apply, so that either (i) in the case of a part-time worker, like Brazel, working fewer than 46.4 weeks per year, the statutory scheme by which a week’s pay is calculated should be “read down” so that holiday payment should be capped at 12.07% of annualised hours; or (ii) the entitlement to 5.6 weeks’ leave should be pro-rated,  with leave entitlement based on the amount of weeks worked in a year.

EAT decision

The employee’s appeal against the Employment Tribunal judgment was upheld. The EAT’s conclusion was that Brazel’s holiday pay should have been calculated using the 12 week averaging method.   The EAT did not consider there to be a requirement to pro-rate the leave entitlement of part-time employees (which is what the 12.07% formula achieves), whether to avoid a “windfall” for term-time only workers or to avoid full-time employees being treated less favourably than part-timers.

The EAT also commented that the overriding principle of the Part-time Workers Regulations is that part-time workers are not to be treated less favourably than full-time workers. There is no principle to the opposite effect, and as such there was no basis for the tribunal’s amendment of the statutory 12 week averaging scheme, the provisions of which are unambiguous.

Comment

The facts of this case involve a term-time only teacher. However,   the principle of the EAT’s decision will apply equally to any business which uses the 12.07% accrual formula for staff on zero hours contracts or other casual working arrangements.  There are different versions of this approach – in some cases, like Brazel’s,  the accrued amount is paid at intervals throughout the year; in others, employees accrue 12.07% of hourly pay throughout their working weeks/months and receive the accrued amount when they take holiday or leave the business; finally, some employers “roll-up” an extra 12.07% into the hourly pay rate.  (Remember that, although rolled-up holiday pay technically breaches the Working Time Directive,  payments clearly identified as holiday pay on worker’s pay slip will be offset against any holiday pay claim).

The 12.07% method undoubtedly provides employers with a practical rule of thumb when calculating holiday accrual for casual staff.  Although it is not approved by legislation, as mentioned in the Brazel case,  the ACAS guidance refers to holiday entitlement for a casual worker as being 12.07% of hours worked over a year.  In addition, the Gov.UK online holiday entitlement calculator uses this formula.   Unfortunately, the value of this formula is now diminished and the Brazel decision leaves businesses with uncertainty and the risk of their established methods of providing holiday/holiday pay for casual staff being open to challenge.