New approach to calculating holiday pay for part-time workers
Our latest expert insights come from Bob Fahy, of legal advice firm VWV…
The Brazel Judgment
The Supreme Court’s decision in the case of Harpur Trust v Brazel has changed the way holiday pay is to be calculated. The case held that all workers who are retained on a year-round basis are entitled to 5.6 weeks statutory holiday, regardless of how much time they work in a year. Although the case is based on a part-year working pattern in a school context, it will be relevant to any MedCity member who engages, for example, zero-hour contracts or workers with irregular working patterns.
How was holiday pay calculated before?
Most employers would have either used the pro-rata principle for part-time workers with regular hours, or looked at the percentage method for calculating holiday pay where hours were irregular. The pro-rata method requires holiday being reduced on a pro-rata basis to correspond to the worker’s working pattern. Using the percentage method, holiday pay would accrue at 12.07% of the hours that were actually worked. This method was attractive to employers, as it was an easy and pragmatic way to pay holiday on a day-to-day basis, but has been rendered invalid by the Brazel judgment and could lead to significant underpayments of holiday pay if employers continue to use it.
How should holiday pay be calculated now?
Holiday pay calculations will depend on the worker’s hours and how they are paid. In simple terms, each individual’s holiday pay entitlement must be calculated by first working out their weekly pay, and then multiplying this by 5.6. The potential for complexity arises when looking at different categories of working pattern.
1. Normal working hours with pay that varies according to when the work is done (in other words, shift work)
For those who get paid more or less depending on the shift they are working, for example night shifts or weekend shifts, employers should be looking at the average normal working hours of a week and the average hourly rate of remuneration, and this will capture the overall average based on the different shifts worked. The employee’s holiday pay should then be calculated based on this average weekly pay figure.
2. No normal working hours
Holiday pay for those who are engaged on zero hours or have variable hours, where there is no guarantee of hours and they vary throughout the year, is calculated again by using an average. Employers will need to calculate the average weekly pay over the last 52 weeks worked (disregarding any weeks where no work was done) and multiply this by 5.6 weeks. Employers can potentially go back up to 2 years in order to identify weeks where work was done and work out a 52-week average.
What about overtime?
Provided the overtime is not part of the worker’s normal remuneration, but is instead ad-hoc and unexpected, it can be excluded from the average weekly pay calculation. However, if overtime is guaranteed, compulsorily or regularly worked, it should be included in at least the first 4 weeks’ holiday.
What about independent contractors?
Many organisations in the pharma sector will engage with external contractors in functions such as quality assurance. As long as the person delivering such services in genuinely self-employed, they do not have the statutory right to paid holiday. However, this is not always easy to ascertain, so risks can arise when organisations agree to treat someone as a self-employed contractor but proper analysis would show that they have the attributes (and rights) of a worker.
What should employers consider?
Employers will first need to look at their workforce and see which category each worker falls into to determine whether this decision has an impact.
- Check your contracts – does your contractual wording adhere to the law as it now stands? It may be that the contractual wording is compliant, but the methodology that is used for actually calculating holiday pay is incorrect, so this must also be checked.
- Amend your contracts – as a result of checking your contracts, amendments may need to be made. This should be for both new and existing staff. With existing staff, you may not need to reissue a new contract, but rather provide a letter of variation, if required.
- Arrears / back pay – if changes have had to be made to existing staff members, then employees may argue that they have not been receiving the correct level of holiday pay. Therefore, employers may need to consider how they will approach arrears and back pay.
- Communicate – employers should inform staff of any changes that are made, including any updates that will be made to their contracts.
Review contracts of employment
We will be exploring these issues further in a webinar for MedCity members and VWV’s wider pharma and life science community on Monday, 05 December 2022 at 2:30pm. If you would like to attend the webinar, please register:
Bob Fahy is a Partner in the VWV Employment Law Team with particular specialism in the HE, Life Sciences and Early Stage Tech Sectors.
Tel: 07500 686 163