A recent Supreme Court decision on holiday pay has provoked much press, and considerable angst amongst employers, fearing that they could owe thousands in back pay.
Certainly, the decision in Harpur Trust v Brazel last week was an important one. After a 7-year legal battle, the Trust lost its argument that holiday pay should be pro-rata’d for a permanent worker (a peripatetic music teacher).
The good news for many employment experts is that it at least brings some certainty. The bad news for some employers is that it could leave them exposed to claims on back pay, as they have not been paying enough for holidays to employees that work term time only.
In reality, outside the education sector, not many workers will fall within the provisions of this decision. And, under normal circumstances, even if the Employment Tribunal subsequently finds against the employer, claims are generally limited to back pay for 2 years.
And, the decision does not affect part time workers, as it is widely accepted that the way most employers calculate their holiday pay is correct. That method is generally to pro-rata the time they work in either hours or days per week when calculating their holiday allowance. But, because they generally work regularly throughout the year, the calculation is the correct one.
What does the decision mean?
The worker in question was a music teacher who only worked during term time. To calculate her holiday pay, 12.07% was added to her pay at the end of each term.
How did they arrive at this particular figure? They simply calculated that the statutory 5.6 weeks holiday was 12.07% of a full 52 week working year. This has been a pretty standard calculation for many years.
She argued that though she only worked for 32 weeks a year, when work was available, the Working Time Regulations gave her 5.6 weeks holiday every year. The Supreme Court has agreed, while recognising the bizarre outcomes that this could cause – for example, in the highly unlikely situation of a worker on a permanent contract who only works one week a year could also be entitled to a full holiday allowance of 5.6 weeks!
They suggested that in reality, this was highly improbable. And we rather agree, especially as now employers should now look closely at contracts for such workers. They are known as part year workers, and such calculations will only apply if they are on permanent (what we prefer to call on-going) contracts.
Should employers do anything?
As this will only apply to a small fraction of workers, then the headlines that we have seen that this will have “Huge implications for HR” are rather too sensationalist.
We suspect that contracts in the education sector will rapidly adapt, as will pay levels to take into account these recent changes.
In most of the sectors, the effect will be minimal. But if you do employ part year workers because you supply the education sector or other seasonal sectors, then take good advice about your contract. There may be a nasty surprise lurking within there.
The guidance provided in this article is just that – guidance. Before taking any action, make sure that you know what you are doing, or call an expert for specific advice.