A court case decided earlier this year has provided a fundamental change to the way that holiday pay is calculated for casual and part time workers. Companies previously paying holiday based on a percentage calculation must now use the calendar method, assessing holiday pay based on the average number of hours worked over the last year. The move undoes a long standing rule of thumb payment method for employees or itinerant workers doing anything other than a full time, 52 weeks salaried role.
Under The Working Time Regulations (WTR 1998) UK law entitles all workers to 5.6 weeks of paid holiday every year, including the usual eight bank holidays. For anyone on a running contract e.g., a Zero hours or casual workers contract and therefore not actually taking the paid holiday as holiday, their entitlement was typically paid as a premium, based on a calculation which considered holiday as a percentage of working time.
Supreme Court Rules 12.07% Cannot be Used
The rate previously used was 12.07%. This figure was based on 5.6 weeks of holiday as a percentage of the remaining 46.4 worked weeks in a year. Moving forward, employers should look back at the last 52 weeks in which the employee/worker was paid and calculate their average pay from that. If this straddles a holiday year, it may be that the employer will need to look back over a two year or 104 week period to get an annual average.
This is likely to carry significant implications for industries that employ a lot of causal, itinerant or peripatetic workers, who work sporadically but remain on contract for the intervening period. Hospitality and agriculture are prime examples of those who have large numbers of staff who work and are paid irregularly.
There is some concern that the ruling may result in payroll for those working or being paid intermittently becoming admin heavy. Suggestions include the need to ‘off payroll’ staff – making them starters and leavers – following each period in which they work, rather than leaving them on open ended contracts.
There is also the question as to how employees/workers will respond to the ruling. The actual case in question that resulted in the high court ruling was some time ago and effectively the high court has made clear that 12.07% was unlawful. There is a chance that this creates a precedent which encourages more individuals to query the amount of holiday pay they have received.
As a result, companies are encouraged to implement the revised calculation method immediately and to consider revisiting any holiday pay calculated during the current holiday year. This will help to avoid back claims and allay concerns from staff.