If you use the 12.07% method for calculating holiday pay, you need to read this!

The position regarding holiday entitlement for workers with varying work patterns (particularly those who don’t work every week) was considered by the Court of Appeal in the recent case of Harpur Trust v Brazel – and the result took many people by surprise!

The facts

The background to the case is that Ms Brazel is a clarinet and saxophone teacher. She worked at one of the Trust’s schools providing individual lessons to pupils. Her working hours would vary depending on how many pupils wanted lessons, but were generally between 10 and 15 hours per week. She was paid by the hour and did not work during school holidays. She was required to take her holiday entitlement during the holidays.

In dealing with her entitlement to holiday pay, the school did what many employers do – they referred to ACAS guidance on the subject. This resulted in them calculating holiday pay on the basis of 12.07% of hours worked. In our experience this is a very common method of calculation for employers to use. The school paid Ms Brazel her holiday pay in three chunks in March, August and December each year, based on the hours she had worked.

Where does the 12.07% come from?

The logic behind it is this:

• For each holiday year, a worker is entitled to 5.6 weeks’ leave (this is the statutory minimum under the Working Time Regulations).

• However, when calculating you allow for the fact that those 5.6 weeks of the year will not be worked. 52 weeks minus 5.6 weeks is 46.4 weeks.

• 5.6 divided by 46.4 is 12.07%.

What method did the Claimant say should be used instead?

The Claimant’s position was that the 12.07% calculation left her worse off than she should have been under the Working Time Regulations. This was because the Regulations state that for people whose working hours vary, holiday pay should be calculated on the basis of an average of the previous 12 weeks’ remuneration. By using the 12.07%, the school had pro-rated her holiday entitlement both on the basis that she was part-time, but also on the basis that she only worked part of the year. She wanted the school to use the method set out in the Regulations.

On the employer’s side, they argued that the averaging method would give an unfairly generous result for the Claimant when compared with other members of staff. Based on the hours in question, it would have resulted in the Claimant receiving 17.5% of her hours worked as holiday pay – a significant difference.

The case went to the Employment Tribunal which agreed with the employer, but the decision was appealed to the Employment Appeal Tribunal, which found in favour of the Claimant. The school then appealed the case to the Court of Appeal.

The Court of Appeal agreed with the Employment Appeal Tribunal’s analysis, and rejected the school’s argument. In particular, it concluded that even if the averaging approach did result in a ‘windfall’ for people in Ms Brazel’s situation, that was not a problem. The Part-Time Workers Regulations give protection to part-time workers against less favourable treatment, but there was no legal principle to prevent part-time (and/or part-year) workers from being treated more favourably than their colleagues.

So what does this decision mean for employers?

Although this particular case was about a term-time only teacher, the principles of the decision are likely to be far-reaching to many other working patterns.

It is hard not to feel sympathy for the school in this situation, as they acted in accordance with ACAS advice (and a practice which is fairly widespread).

The decision will affect every employer which currently uses the 12.07% method. Until now, employers have tended to like the 12.07% method, because it gives a practical rule of thumb for them to follow when calculating holiday accrual for casual or variable hours staff. Unfortunately, the Brazel decision will make life much trickier and many organisations will find themselves open to challenge.

It is worth bearing in mind that the averaging method applies only when there are no normal working hours. If there are normal hours of work, then holiday pay should be paid at the employee’s usual rate.

For those with variable hours, the impact of the Brazel case is that in any situation where the 12.07% figure gives a different result to the averaging method, an employer will be liable for the difference.

We recommend that employers check their holiday pay calculations, particularly in respect of employees who work term time only or similar variable patterns where there are periods of time without work. It may be that employees who are aware of this decision will put in claims for back pay as well as insisting on the averaging method being used in future.