"How do I calculate holiday pay for workers with irregular hours?"
Calculating holiday pay for workers who work irregular hours has been a long-term problem.
Typically, businesses who retain workers on irregular working patterns, such as those who work on a part-year basis (but not necessarily on a part-time basis), zero hours workers and annualised hours workers, have tended to work out their holiday pay as 12.07% of the total hours that they have worked in the year.
However, the Supreme Court’s decision in Harpur Trust v Brazel [2022] UKSC 21 has made it clear that this is wrong.
The case concerned a music teacher retained by a school on a permanent basis on a zero hours’ contract. She was both part-time on the weeks when she did work and also worked for part of the year.
The school paid her holiday pay on the basis of 12.07% of the total hours that she worked across the year, but the Supreme Court held that this was incorrect: a part-year worker was entitled to a week’s pay for each week of holiday taken, just like a full-time, permanent worker.
Clearly, as a result of this decision, many businesses might find themselves in the difficult situation of:-
(1) Understanding how to pay the right amount of holiday pay to a worker who works irregular hours in the future; and
(2) Handling a significant wage bill for underpaid holiday pay (as the past two years of wages from the date of a claim can be examined in an unlawful deduction of wages claim).
What to do now?
If, as a business owner or as an HR specialist, you are experiencing sweating palms whilst reading this, that is understandable.
However, there is positive action that can be taken now to not only limit the damage of past underpayment of holiday pay, but also to prevent further damage from being caused in the future, such as:-
· Redefining how you will pay holiday pay to workers who work irregular hours in the future. As the 12.07% of total hours worked across the year approach is now clearly no longer lawful, then you might wish to look at the approach of calculating holiday pay based on the average pay paid to a worker over the most recent 52 weeks that the worker has actually worked (and discounting those weeks when the worker has not worked).
· Updating your contracts of employment and staff handbooks to reflect the position that you are taking on payment of holiday pay in the future.
· With your payroll provider, calculating what the payment shortfall might be for workers working irregular hours over the past two years between the 12.07% approach and the 52 weeks approach so that you are prepared in case you do receive a claim. Where a shortfall has been identified, you might decide to sit tight and await a possible claim or you might decide to discuss with your workers how that shortfall can be made up to them in their ongoing pay until it has been paid off.
If you are concerned about the position of your holiday pay arrangements for workers who work irregular hours or if you are concerned that your contracts of employment and staff handbooks do not adequately protect you, our employment law specialists are always happy to assist you.
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