Casual Workers’ Holiday Pay Calculations: The Nuts and Bolts!

2022-10-26

What fraction of "a week's leave" does a casual worker use for each day's holiday?

The Working Time Regulations 1998 (WTR) define holiday entitlement in weeks. Employers and workers usually talk about holiday entitlement in days. The WTR do not set out how to convert holiday entitlement into days or hours for workers with irregular hours. This poses an administrative problem for the day-to-day management of holiday pay for casual workers.
For a full-time worker, or part-time worker with regular weekly hours, it is fairly clear what proportion of a week is equivalent to one working day. For example, a worker who works a three-day week (with the same number of hours each day) would use up a third of a week's leave and be entitled to a third of a week's pay for each working day taken as holiday. The employer knows, in advance, that the annual holiday entitlement, expressed in days, is 5.6 x 3 = 16.8 (which would usually be rounded up to 17).
However, for casual or zero-hours workers, things are more complicated. If a worker works an irregular pattern, with different days or hours each week, how does the employer work out what one day's paid holiday looks like as a proportion of their leave entitlement?
The difficulty arises because it is not possible to calculate, in advance, the employee's annual holiday entitlement in days or hours, without knowing at the start of the year how many days or hours they will work that year. If there is no prescribed times/dates when holiday entitlement must be (or is deemed to be) taken, the employer will need to convert the 5.6 weeks’ entitlement into days/hours at the point holiday is taken and deduct an appropriate portion of a week's leave from the annual entitlement.
The current government guidance suggests calculating average days or hours worked each week based on a ‘representative reference period’, although the WTR do not expressly provide for this and there is no guidance as to what amounts to a ‘representative reference period’ for determining holiday entitlement, as opposed to determining an average week’s pay (looking back at the pay received in the 52-week reference period and ignoring any weeks not worked). But in all cases where casual workers have a permanent contract, employers must ensure that each worker receives at least 5.6 weeks' paid holiday per year following Harpur v Brazel.
For example: a "week" is treated as equal to the average number of days or hours worked per week over a reference period (say, the last 12 weeks). If the worker has worked 39 days over that period; an average week would be 39/12 = 3.25 days. The employer could treat a day’s leave as 1/3.25 (about 0.31) of a week and pay 0.31 times a week's pay. The employee's remaining holiday entitlement for the year would be 5.6-0.31 = 5.29. If there are any weeks in which the worker receives no pay, these should be taken out of the equation, but days of paid holiday should be included.
This method of calculation ensures that the worker receives the equivalent of an average day's pay for each day's leave and is likely to be attractive to workers. However, it does involve a lot of administration for the employer, with the potential for errors to be made, as a separate calculation must be done each time the worker takes holiday. Depending on fluctuations in the worker's working patterns, a day's holiday in June may be paid at a slightly different rate (and represent a different fraction of a week) than a day's holiday taken in September.
It may be possible to avoid or minimise the problem, by specifying when annual leave is to be taken and/or how much annual leave is to be taken at any one time. For each week, the worker would be paid a week's pay based on the usual calculation under the ERA 1996. Requests for odd days off could still be granted but be treated as a request for an unpaid non-working day (which for a casual or zero-hours worker would usually be a permissible way for the employer to treat it under the contract). Requiring workers to take their holiday entitlement in specified amounts at designated times should not cause any legal issues as specifying when holiday is to be taken is permissible under the WTR provided the statutory notice provisions have been complied with - at least twice as many days in advance of the start of the holiday as the number of days’ holiday that the worker is required to take
Until we have further case law decision following Harpur v Brazel, it is hard to say whether either of the options described are categorically right or wrong, because the WTR do not address the question of what fraction of a week equates to one working day for a person with irregular hours. However, provided the employer pays the fraction of a week's pay that matches the fraction of a week's leave used up, then there should be little objection from the workers, as the overall amount of holiday pay received by the end of the year (or the end of the contract) should be about the same.

Practical Examples:

Example (a): The irregular hours lecturer:

Over a 12-week reference period a worker’s average working week is 2.5 days and let’s say they want to take one day’s leave, you would count this as 0.4 of a week (because one day is 40% of their average week: 1 ÷ 2.5 = 0.4) and you would pay them 0.4 of their average week’s pay (looking back at the pay received in the statutory 52-week reference period for calculating a week’s pay, and ignoring any weeks for which there is no remuneration payable).
They would then have 5.6 weeks less 0.4 weeks (5.2 weeks) left to take.

Example (b): The irregular hours lecturer:

Over a 12-week reference period a worker’s average working week is 2.5 days and let’s say they want to take ten day’s leave; you would count this as 1 ÷ 2.5 = 0.4 x 10 = 4.0 weeks. You would pay them 4.0 weeks’ average pay (looking back at the pay received in the statutory 52-week reference period for calculating a week’s pay and ignoring any weeks for which there is no remuneration payable).
They would then have 5.6 weeks less 4.0 weeks (1.6 weeks) left to take.

Example (c): The ad hoc exam invigilator:

Over a 12-week reference period a worker’s average working week is 28 hours and let’s say they want to take one day’s leave; you would count this as 0.25 weeks (where an average day is 7 hours then a day's holiday is 7÷28 = 0.25 weeks). A day’s leave should therefore attract 0.25 of an average week’s pay (looking back at the pay received in the statutory 52-week reference period for calculating a week’s pay and ignoring any weeks for which there is no remuneration payable).
They would then have 5.6 weeks less 0.25 weeks (5.35 weeks) (which, in hours, would be a reduction from 156.8 hours to 149.8 hours left to take).

Example (d): The ad hoc exam invigilator:

Over a 12-week reference period a worker’s average working week is 28 hours and let’s say they want to take ten day’s leave, you would count this as 7÷28 = 0.25 weeks x 10 = 2.5 weeks You would pay them 2.5 weeks’ average pay (looking back at the pay received in the statutory 52-week reference period for calculating a week’s pay, and ignoring any weeks for which there is no remuneration payable).
They would then have 5.6 weeks less 2.5 weeks (3.1 weeks) (which, in hours would be a reduction from 156.8hours to 86.8 hours left to take.

Conclusion:

It is generally impossible to anticipate the working hours that a casual worker will undertake in the future (and without the benefit of a crystal ball) employers may wish to state their position on holiday entitlement from the outset in a written contract between the parties.
Since 6 April 2020, employers have been required to provide employees and workers with a written statement of particulars of employment by section 1 of the Employment Rights Act 1996 (ERA).
The ERA requires the written statement of particulars to specify any terms and conditions relating to holiday entitlement, including public holidays, and holiday pay (with the particulars given being sufficient to enable entitlement, including entitlement to accrued holiday pay on termination, to be precisely calculated).
Given the issues highlighted in this Guidance Note, it is apparent that drafting the contract between the employer and the casual worker, and in particular the holiday pay entitlement clause, is unlikely to involve a “one-size-fits-all” template.
There are a number of contractual options available depending on the needs of the organisation and the possible working patterns anticipated,
Where sporadic short-term assignments are anticipated (such as an exam invigilator) it may be prudent to offer a fixed term contract drafted either for an employee or a worker.
In some cases, it may be possible to avoid an employment or worker contract altogether, if the person in question can legitimately be categorised as a self-employed contractor. To avoid worker status, they must be providing their services to the school as a client of the individual’s profession or business undertaking.
Where the casual workers are likely to be called up on a fairly regular basis it is still possible to use a zero-hours contract. In these circumstances it may be difficult to argue that each assignment is a separate and distinct contract but rather a series of assignments under an umbrella contract.
Recent case law has held that there is no requirement for mutuality of obligation (an obligation on the employer to offer some work and an obligation by the worker to accept some of that work on offer) in order for an individual to establish worker status. Once worker status is established the right to paid statutory annual leave crystallises.
To avoid the difficulties in calculating paid annual leave entitlement it may be prudent to prescribe in the contract when annual leave is to be taken and/or how much annual leave is to be taken at any one time. For example: in Mrs Brazel’s case her 5.6 weeks’ entitlement was divided into three tranches with 1.87 weeks to be taken at the commencement of each of the school holidays at Christmas, Easter and the summer.
Because there is no “one-size-fits-all” template for casual worker contracts it is always advisable to seek specific legal advice on drafting appropriate contracts and legal guidance as to any risks associated with particular contract wording.