Employment Law Update / Holiday Pay Calculations / Right To Work…
Holiday Pay Calculations
A recent landmark judgement by the Supreme Court in the case of Harpur Trust Vs Brazel on the calculation of holiday pay has brought significant changes in how employers should calculate holiday pay for those who work in casual employment.
The judgement provides permanent workers who work only part of the year a total of 5.6 weeks of paid holiday per year. This applies to employees who are on zero-hour, casual, or variable-hour contracts.
Casual permanent employees are workers who are only guaranteed work when it is needed. Usually, they are on zero-hour contracts, and they tend to work fewer hours than a full-time permanent worker. The Working Time Regulations 1998 in the UK grants those who are working permanently a minimum of 5.6 weeks of paid holidays annually, which is normally applied if they work five days a week. The ‘12.07% method’ was usually applied to calculate holiday pay for casual workers which considered the total amount of hours/days they worked over the previous 52 weeks in which they received a salary. This is now considered by the Supreme Court as the wrong method.
Judgement by the Supreme Court
The Supreme Court found that casual workers should receive the normal 5.6 weeks holiday per year; their holiday pay should not be pro-rated and that the 12.07% method was not the correct method to use. This means that casual workers who work 30 weeks of the year, will get the same annual leave entitlement as those who work 52 weeks of the year. The Supreme Court acknowledged the fact that this could have a consequential effect as casual workers who do not work every week during the year will receive an increase in their holiday pay to the equivalent of full-time permanent workers who work 5 days a week consistently throughout the year.
Calculating holiday pay for casual employees
Employers should pay holiday pay at the normal rate of pay and holidays should be taken in blocks of one week to ensure pay is based on the average weekly pay. If weekly pay varies based on the working pattern, holiday pay should be calculated from the worker’s weekly earnings over the previous 52 weeks. The calculation should not include any weeks where normal pay was not received—an example of this is if a worker is on sick leave and they received company sick pay and/or statutory sick pay (SSP). If the working pattern is inconsistent, employers can go back to a maximum of 104 weeks, 2 years to attain the 52 weeks of pay data. If 52 weeks of data is not available then the reference period becomes the number of weeks’ worth of data available.
Employers’ obligation moving forward
The judgement in this case will have an impact across several sectors that employ casual workers and employers are required to review their current approach in how they calculate holiday pay. The judgement states that the 12.07% method of calculating holiday pay has been rejected, which means this method should no longer be used. Casual workers under ongoing contracts – regardless of the amount of work carried out – are entitled to 5.6 weeks of holiday pay and it does not matter how many weeks in the year they work. Employment Tribunal claims can go back as far as 24 months for underpayment of holiday pay; employers should consider the financial liability and quantify potential back-pay claims over this period as well as correct their method of calculating pay moving forward.
Right-to-Work Checks
During the COVID-19 pandemic, the government introduced digital ways for employers to check employee’s right to work in the UK because of the difficulties associated with manually checking documents. These arrangements end on 30 September.
New digital right-to-work checks, using ‘identification document validation technology’ (IDVT), became available for employees with valid British or Irish passports from 6 April 2022.
Employers can use an ‘identity service provider’ (IDSP) to carry out this check, although they remain responsible for checking the identity of the employee and retaining the record for the duration of employment plus two years.
From 1 October, employers will need to either:
• Carry out a manual check by physically meeting with the employee to check and copy their original documentation.
• Appoint an ‘identification service provider’ (IDSP) to check the passport of the employee on their behalf or carry out the check themselves using ID document validation technology. Government guidance has been updated and has a list of approved IDSPs. The Employer Checking Service continues for right-to-work checks on non-UK/Irish citizens.
For further support and information on either of these Employment Law Updates, please contact The HR Team
