Is the sun coming out for the holidays? Government consults on reversing Harpur v Brazel “absurd result”. Pro-rating holiday pay - back on the table for term-time and casual workers.

The media have called Rishi Sunak’s snappily titled ‘Retained EU Law (Revocation and Reform) Bill’ a “bonfire of laws”. His plan is to automatically repeal legislation derived from EU law, such as the Working Time Regulations 1998, so that it all expires on 31 December 2023 (unless it is expressly retained in new UK laws). Is it goodbye to key workers’ rights including paid annual leave?

Unsurprisingly, the “Sunset Bill”, as it’s affectionately known, has met with considerable opposition, both from within the House of Commons and beyond in Europe, revealing deep concerns that the UK is about to lower standards for workers’ rights – breaching the “level playing field” provisions at the heart of the Brexit deal.

Given the political opposition, the sun may never set. Instead the Government has shone a ray of sunshine on the issues arising from last year’s decision in Supreme Court decision in Harpur Trust v Brazel. Last month the Government issued a Consultation Paper to understand the implications of Brazel on different employment sectors – ‘Calculating Holiday Entitlement for Part-Year and Irregular Hours workers’. The consultation period closes on 9 March 2023. The Government will then take time to consider replies to the consultation and will publish its response ‘in due course'. We may see legislation by the end of this year, which would eclipse any sunset on the Working Time Regulations and other secondary legislation deriving from EU law. Watch this space…..

You will know from our previous blogs, that the judgement in Brazel impacted significantly on term-time only staff and casual workers within the schools sector, such as supply staff and exam invigilators. Between 320,000 and 500,000 permanent term-time and zero-hours contract workers were expected to receive additional holiday as a result of the decision. And, approximately 37% of these are workers in the education sector, such as teaching assistants who are employed on part-year contracts. 

As a result of the decision in Brazel, part-year workers are entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year. In short, the Supreme Court in Brazel held that all workers on permanent or continuous contracts must receive a minimum of 5.6 weeks’ paid annual leave each year, whether they work all of the year, part of the year or just one week of the year. We all remember the “absurd result” for the lucky exam invigilator, who only works for one week but is now entitled to 5.6 weeks’ paid holiday!

The Government wants to address this “unfairness”. It intends to amend the Working Time Regulations to ensure that paid holiday entitlement for workers is proportionate to the time they spend actually working. In other words, allowing employers to pro-rate a worker's holiday entitlement to reflect the number of days/weeks they work each year. You may be a having a déjà vu moment too! It appears that calculating holiday entitlement may be coming full-circle back to the good old days, pre-Brazel, when pro-rating was the method used by the vast majority of employers for part-year workers.  The Government also wants to make the law easier to understand and follow – the proposal is to replace the 52 week reference period when weeks in which no remuneration is earned are ignored, with a 52 week reference period which includes weeks with no remuneration. What this means in practice is that the Government will allow employers to use a mathematical short-cut to work out holiday entitlement based on 12.07% of the number of hours actually worked. Sound familiar?

If implemented, employers will have to:

• Calculate the total hours a worker has worked in the previous 52 weeks (this is the reference period), including weeks where they don't work; and 
• Multiply the total hours worked by 12.07% to give the worker's total annual statutory holiday entitlement in hours:

→ Hours worked in previous 52 weeks x 12.07% = annual statutory entitlement in hours.

There is another way to reach the same answer. Employers can divide the total hours worked by 46.4 and multiply it by 5.6. This approach has been popular in the education sector. 

Why 12.07%?

Full-time workers are entitled to 5.6 weeks statutory holiday each year. This means that they work for 46.4 weeks a year (52 minus 5.6 weeks). 12.07% represents 5.6/46.4 x 100 = the percentage of their working time which represents their holiday entitlement.

What if contractual holiday is more than 5.6 weeks?

12.07% only applies where holiday entitlement is limited to the statutory amount of 5.6 weeks. If you offer additional contractual holiday, the percentage will need to be increased to reflect this correctly.

E.G.: Full-time workers receive 5.6 weeks holiday plus 8 additional days = 36 days (7.2 weeks). This means that they work for 44.8 weeks a year (52 minus 7.2 weeks). The calculation looks like this: 

7.2/44.8 x 100 = 17.41% (i.e. the percentage of their working time which represents their holiday entitlement).

What about holiday entitlement for workers with less than 52 weeks’ service?

Under the Working Time regulations, during the first year of employment, workers are entitled to 1/12th of their annual holiday entitlement at the start of each month. For workers who have fixed hours of work, their holiday calculation can be done in advance. But for workers with a zero hours contract or whose hours of work vary week by week, it will not be possible to calculate holiday entitlement in advance of the work actually being done. In these circumstances, workers will be entitled to receive 5.6 weeks holiday (or such additional entitlement that the employer provides) pro-rated to reflect the number of hours they have actually worked.

Employers will be allowed to calculate their holiday entitlement at the end of each month, based on the number of hours they have worked that month: 

→ Hours worked in previous month x 12.07% = monthly statutory entitlement in hours 

Obviously, you will be able to offer more generous terms should you wish to do so.

What about calculating a week’s pay?

The changes proposed by the Government refer to calculating the amount of holiday entitlement (in weeks/days/hours) and not the way in which the multiplier of a week’s pay is calculated (see ss221-224 of Employment Rights Act 1996 – explained in our previous blogs). 

To work out the holiday pay of workers without fixed hours of work, you will still have to go back 52 weeks to work out the weekly average rate of pay excluding weeks where they haven't earned any money. This calculation has to be done every time the worker takes a holiday.

Conclusion:

We know that, following Brazel, many of you changed to the way in which you calculate holiday entitlement for your term-time only and casual hours staff. The Green Book was also amended to follow the EAT decision in Brazel, which was ultimately followed in the Supreme Court ruling.

If you have changed your contracts of employment to reflect Brazel, rather than revised only your methodology or policy for calculating holiday entitlement, you can't simply reduce the amount of contractual holiday entitlement without consultation and a proper process for changing terms and conditions. Obviously, staff (and unions) are unlikely to agree to reducing an agreed paid holiday entitlement. It is clearly advisable that any attempt to make such changes should not start until these current Government proposals become law. 

Where you haven't implemented the Brazel decision, you could adopt a wait and see approach and run with the risk of dealing with any claims should any arise on an ‘as and when’ basis. However, this won’t prevent backdated claims, provided they are brought within the necessary time limits, and employers who have underpaid staff will still have ongoing liabilities (the current proposals will not apply retrospectively).

How can we help?

If you have any questions arising from this blog, please contact us at Just People HR for legal advice and support.