The recent Surpreme Court Judgment of Harpur Trust v Brazel (commonly referred to as “the Brazel judgment”) has impacted how holiday entitlement and holiday pay is to be calculated. This impacts both employers and employees significantly, particularly those working part-time or atypical hours, or who only work for part of the year, such as teachers.
The previous advice, backed by ACAS and BEIS, has been that full-time employees are, by law, entitled to 5.6 weeks’ holiday every year. Part-time employees, or those on variable hours, were entitled to receive the pro-rated equivalent. In addition, a common method of calculating holiday pay for such workers was to use the “12.07%” calculation, i.e. 12.07% of that employee’s salary was holiday pay.
These approaches have now been challenged and as such, all employers are at risk of being non-compliant with this judgment and at risk of claims against them.
Brazel judgment - Holiday entitlement
The judgment has held that part-time or atypical workers are still entitled to 5.6 weeks’ holiday per year and this entitlement can no longer be pro-rated. Nonetheless, the definition of a ‘week’ in such a context will be different to that of full-time staff and will relate directly to the employee’s usual working week. In practice, this means different things for different categories of workers.
For example, let’s look at how this affects those working on a part-year basis. A teacher that works 40 weeks out of the year is still entitled to 5.6 weeks’ holiday, similar to an accountant working on a full-year basis.
For part-time workers or atypical workers, they will also still be entitled to 5.6 week’s holiday. The definition of ‘week’ here, however, would be in line with their usual working week. An administrative assistant working 25 hours per week would therefore, for example, be entitled to 25 hours off per ‘week’ of holiday entitlement.
Most employers currently use the old pro-rata method and as such, this is likely to need urgent attention.
Brazel judgment - Holiday pay
To calculate holiday pay per year, the general or default approach is to multiple one weeks’ pay by 5.6.
However, employers must now look at how its individual employees work and how they are paid, to identify what a normal weeks’ pay is for that specific employee. The different categories that an employer would need to distinguish are:
- Normal working hours and fixed rate of pay (includes part-year)
- Normal working hours with variable pay (piece work)
- Normal working hours with variable pay according to work done (night shifts, etc.)
- No normal working hours (‘zero hour’)
The calculation for each category will vary and as such, internal reviews of calculations procedures, for individual employees, will need to take place.
Rolled-up holiday pay is now also going to be difficult to justify under the new judgment and as such, employers should look at moving away from this structure. During reviews, it should also be considered when holiday pay will be paid. There may be more suitable commercial approaches to this than is already in place, so advice from an HR or legal professional is likely to be useful here.
The impact of the Brazel judgment is widespread and effectively means that many employment contracts will now be non-compliant, as employees have been given insufficient holiday or pay.
We know that contracts must include the following:
- All staff are entitled to 5.6 weeks holiday entitlement (no pro-rating);
- Confirm position on public holidays;
- For salaried staff – confirm holiday pay is included in salary; and
- For hourly paid staff/irregular hours – confirm when holiday pay will be paid.
As such, employers should now review their own contracts and consider whether they need to revise the terms or revise the internal calculation procedures, to ensure their employees are receiving their full holiday entitlement and pay. If employers discover that their internal calculations have been insufficient to date, there may be a number of practical measures that need to be taken.
Employers may decide to do nothing in respect of arrears, but be positive about correcting the calculations moving forwards. Of course, there is a risk here of claims for backpay (subject to the two-year rolling limitation period), so it may be useful to have open conversations with employees. Such claims must be made by employees within three months of the last ‘reduction’, so in theory, can be made by recent ex-employees as well as current ones.
Moving forwards, there are a number of steps to take, including revising working patters, considering approaches to backpay and communications with staff and contract variations. There may also be a number of practical contractual changes or internal restructuring of how employees are retained, to ensure efficiency in this area. In any event, it is quite clear that there is no blanket advice to be given and each instance must be dealt with on a case-by-case basis.
The Brazel judgment has clearly torn up the rulebook and set out a real task for employers. There is likely to be a fair amount of admin involved, but it is important that employers sit down with internal or external HR/Payroll experts and conduct individual calculations for each employee, and with legal professionals to ensure that the contracts accurately reflect the same.
Please note that a new internal calculation (or updated contract) will not necessarily mean that there has been any underpayments or holiday pay, simply that the employer has been using an incorrect calculation. As long as this has exceeded the statutory minimums to date, then there should be no issue in respect of arrears. However, internal methods of calculating the same should still be revised in light of the judgment.
If you do need to address employees, consider how you deliver your message and intend to approach any issues moving forwards, whether this be arrears or contract variations. Be prepared with calculations and records in such a case, so that you can explain the situation clearly.