Calculating holiday pay for term-time only workers

VWV's Simon Bevan discusses holiday pay and the introduction of Working Times Regulations

At VWV, we represent the Harpur Trust as they seek a common sense interpretation of the approach to calculating holiday pay for term-time only workers under the Working Time Regulations (WTR). The Harpur Trust includes under its operation four independent schools: Bedford School, Bedford Modern School, The Bedford Girls’ School and Pilgrim’s School. Since the introduction of the WTR, it has been common practice to recognise that working part of the year is a part-time working arrangement, calculating holiday pay on a pro rata basis to the proportion of the year worked. To ensure all workers are paid the pro rata equivalent of the 5.6 week statutory holiday entitlement, holiday pay is frequently calculated as being no more than 12.07% of annual earnings, (the amount a full-time worker would receive).    

A recent Employment Appeal Tribunal judgment disagreed with pro rating holiday pay to the proportion of the year worked and rejected the 12.07% method of calculation. The judge ruled that holiday pay should be calculated on a 12-week average of pay from weeks actually worked.  The Harpur Trust has sought leave to appeal to the Court of Appeal as the judgement has far-reaching implications for practices across many sectors within the economy. 

Background

Mrs Brazel (the Claimant) is employed by the Harpur Trust (the Respondent) to work at one of its schools as a visiting music teacher. 

The Claimant is employed on a zero hours contract. She is entitled to the equivalent of 5.6 weeks’ paid annual leave per academic year. Part-time employees receive pro rata holiday entitlement and pay per year to receive the ‘same’ percentage as their full-time equivalents.  

Full-time employees receive 5.6 weeks holiday leave and pay calculated as 12.07% of annual pay. (The calculation is 5.6 weeks holiday/46.4 working weeks in a full-time 52 weeks per year contract = 12.07%). This calculation is used by ACAS and others as it ensures fairness between full-timers and part-timers.  

The claim

The Claimant sought to rely on section 224 of the Employment Rights Act (ERA) which sets out the method to calculate the weekly pay of an employee with no normal working hours. The Claimant’s case was that section 224 ERA entitled her to 5.6 weeks’ holiday pay based on the Claimant’s average weekly pay over the 12 weeks actually worked by her, immediately prior to the relevant holiday being taken. This would have provided more pay than the 12.07% calculation.

The Respondent argued that the entitlement to 5.6 weeks holiday per year should be pro-rated where the employee works fewer weeks than 46.4 weeks a year.  If someone worked 26 weeks per year for example, they should receive 2.8 weeks holiday. 12.07% as a method of calculating holiday pay is a recognised way to ensure pro rating works effectively and full- and part-time workers are treated equally.   

Simon Bevan

Employment Tribunal decision

The Employment Tribunal (ET) agreed with the Respondent, accepting that the amount of holiday entitlement should be pro rated in light of both her part-time and term-time only working pattern.

The ET rejected the Claimant’s argument that she was entitled to holiday pay in accordance with section 224 ERA. The ET found that this 12-week calculation would have entitled the Claimant, who had only ever worked between 32 to 35 weeks a year, to the same 5.6 weeks holiday pay as someone who worked full-time.  This would provide for an actual 17.5% of holiday pay, being more generous than for someone who worked 46.4 weeks per year.  

Employment Appeal Tribunal decision

Surprisingly, the EAT allowed the appeal, finding that:

 – The purpose of the relevant EU and domestic provisions is to ensure that part-time workers are not treated less favourably than those who work full-time

 – There is no equivalent provision so that full-time workers may be treated less favourably than those who work part-time

 – Section 224 ERA can be used to calculate the weekly pay of someone who works irregular hours

 – There is no entitlement for a school to carry out an exercise in pro-rating holiday entitlement and pay for those who work part of the year (only for those who work part of the week)

The judge accepts that those working part of a week, will receive a pro rata holiday pay entitlement. The judge did not accept that those working part of the year, may have the same pro rating calculation applied to their holiday pay entitlement.

Whilst the 12.07% calculation of holiday pay is widely used, this judgment means that those who work part of the year will receive a higher percentage of holiday pay. The 12.07% calculation may not be used as a cap. At the extreme, if someone worked 12 weeks, they would be entitled to a full 5.6 weeks of holiday pay, calculated as the average weekly pay over the 12 weeks actually worked achieving a significantly higher percentage of holiday leave and pay than a full-time equivalent. (Please be assured that this will not apply to full- and part-time teachers on a salary scale who are paid a percentage of the full-time equivalent salary).

The wording of the contract of employment cannot avoid this liability.  5.6 weeks’ holiday entitlement and pay is a statutory entitlement and cannot be avoided by contract drafting.  

The Harpur Trust have sought leave to appeal the judgment.     

Comment

Whilst leave to appeal is being considered by the Court of Appeal, it is premature to change current practices. Where staff raise any queries, they should be informed that the position is under review whilst an appeal is being progressed in the courts.      

The judgment must, however, be considered in light of the recent European Court of Justice decision in King v Sash Window Workshop case which could mean that any underpayment of holiday pay could be backdated for more than two years, potentially to the start date of employment or 1998, (the introduction of the WTR), whichever is the earlier.   

Schools may wish to audit their current leave and pay entitlements for term time only, casual and zero hours staff to consider the potential implications of the judgment in the event it is not overturned.  

The EAT judgment as it currently stands does mean that contract wording cannot avoid its implications. It is through appeal that the position will be redressed.         

To be kept up to date with regulatory compliance, please ask for a demo of My OnStream. My OnStream is a cloud-based compliance management solution tailored to schools, providing a range of compliance services supported by VWV’s sector-leading lawyers. If you would like to find out more visit vwv.co.uk/mos/schools

Simon Bevan is a partner at leading education law firm VWV. Simon can be contacted on 0117 314 5238 or at sbevan@vwv.co.uk