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Holiday pay consultation seeks to redress disparity | accountingweb
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Consultation to address holiday pay disparity

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The case of a music teacher and her annual leave accrual resulted in concern that part-year workers might be entitled to more holiday pay than those working regular hours. A new consultation seeks to gather views on how this could be corrected.

25th Jan 2023
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The Harpur Trust vs Brazel Supreme Court ruling in July 2022 concerned a part-year worker and their annual leave accrual (and payment). The ruling resulted in the concern that part-year and irregularly paid workers became entitled to a larger holiday leave and pay entitlement than workers who may be working an equal number of hours across the holiday year. This meant changes to processes – yet all of that is now in question given a Department for Business, Energy and Industrial Strategy (BEIS) consultation on the topic.

Continuing contract

Brazel was employed under a continuing contract as a music teacher by Harpur Trust. She worked only for part of the year – term time. Initially, her employer did calculate her leave entitlement as 5.6 weeks per annum, as per the Working Time Regulations. They deemed this was taken in the winter, spring and summer school holidays (therefore, equal to 1.87 weeks each time). With regards to holiday pay, this was paid at the value of a week’s pay, as per the Employment Rights Act 1996, calculated by looking at Brazel’s earnings over the reference period (the previous 12 weeks, now 52 weeks in Great Britain).

However, from 2011, Harpur Trust changed the calculation. The leave was still deemed to be taken in three equal instalments (1.87 weeks at the end of each term). However, pay was calculated using the 12.07% method. This meant that the employer looked at hours worked and pay received by Brazel at the end of each term, multiplying this by 12.07%, as per ACAS guidance at the time.

The 12.07 is derived from the full year (52 weeks) less annual holiday entitlement (5.6 weeks) giving 46.4 weeks of time not on holiday. 5.6 weeks is 12.07% of 46.4 weeks.

To summarise the lengthy court ruling, the Supreme Court decided Brazel had suffered unlawful deductions from wages under the Employment Rights Act 1996. It was incorrect that Harpur Trust could rely on the court to agree a reference period that was “just”. So, they ruled:

  • The correct interpretation of the Working Time Regulations is that holiday pay must be calculated as per the Employment Rights Act 1996, which prescribes a reference period (now 52 weeks). This means that the 12.07% method is incorrect and should not be used.
  • It is incorrect to pro-rate the annual leave entitlement for part-year workers – although this is not what Harpur Trust did.
  • Further, this ruling applies to workers under a permanent contract of employment, regardless of whether this is part-year, like Brazel, or one who is irregularly paid such as someone on a zero-hours contract.

The 2023 consultation

It was recognised in the ruling that part-year and workers who are irregularly paid may become entitled to more holiday than colleagues working the same number of hours, for example, those working part-time.

On 12 January 2023, the UK Government issued a consultation document highlighting this and seeking to gather views on how this affects employers and how this disparity could be corrected in law. This is significant, as any changes will impact the two important pieces of legislation that govern holiday leave and pay:

  1. The Working Time Regulations 1998 (leave)
  2. The Employment Rights Act 1996 (the rate at which the leave is paid).

The consultation stresses the government is keen to reintroduce the reality that part-year workers (like Brazel) and workers with irregular hours receive holiday entitlement and pay reflecting the hours they have worked. So, this is a direct response to the Supreme Court ruling that says such workers should receive 5.6 weeks regardless of the hours worked. They are proposing via the consultation:

  • The length of the holiday entitlement reference period (for leave) should mirror the length of the current holiday pay reference period (for pay), in other words, 52 weeks.
  • However, the leave entitlement 52 weeks would include weeks without work. This is in contrast to the pay reference period, which is based on the last 52 weeks of paid work, capped at 104 weeks.
  • The 52-week leave reference period could begin at the start of each leave year – so be fixed rather than based on a rolling reference period that varies week by week.
  • For part-year workers and workers with irregular hours, the government proposes bringing back the 12.07% approach to give an annual statutory hourly leave entitlement – hours worked in the previous 52 weeks X 12.07%.

These are significant changes, all in the name of ensuring that the leave entitlement for such workers is calculated according to hours actually worked in a 52-week reference period.

Across the UK

Of course, making the changes UK-wide would be far too simple! Employment law is devolved to Northern Ireland. The Working Time Regulations and the Employment Rights Act do not apply in this part of the UK.

The consultation recognises this and says any resultant legislation changes would extend only to workers in Great Britain.

So, any changes result in further complications for employers and software developers who already have to cope with, for example, the fact that the reference period in Northern Ireland is 12 weeks.

Employer action

Employers, agents and individuals should consider responding to the consultation which closes on 9 March 2023. This can be done online or via email at [email protected]. There are 22 questions to respond to, 13 of which are about the capacity in which you are responding.

Then, employers should look at the proposals and consider whether their current systems and/or processes allow this to happen in reality. For example, a 52-week reference period for leave differing from one for pay is a significant change for the workers who will be impacted.

Yet, we do need to keep an eye out for the progress (or otherwise) of the Retained EU Law (Revocation and Reform) Bill. As it stands, this Bill will ensure that any EU-derived legislation “falls away” at the end of 2023 unless a conscious decision is made to retain or reform it. The Working Time Regulations are derived from the EU’s Working Time Directive and give workers a statutory right to four weeks of annual leave. If such a conscious decision is not made, the statutory right to this holiday leave and pay falls away anyway.

Replies (7)

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By tom123
25th Jan 2023 15:37

I genuinely have no idea how, mathematically, one can calculate this entitlement in the real world. My software (new, education specific) certainly cannot do this.

The legislation seems to assume I have an (easily accessible) library of up to 104 weekly timesheets per person affected.

The staff this affects (music teachers etc) will have submitted various timesheets - but, typically, they would be one sheet per month.

They cannot get rid of this hateful and unworkable legislation soon enough.

How can it be that someone working 20 hours one week and none the next gets twice as much holiday as someone working 10 hours every week?

Thanks (7)
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By Hugo Fair
25th Jan 2023 16:03

Arguably worse even than the current state of affairs is the unanswered question ... why has it taken the government (specifically BEIS) so long to take any action - if holding a consultation can be deemed as taking an action?

The Harpur Trust vs Brazel case initially went to ET nearly 8 years ago and the claimant won at the subsequent EAT quite some time ago ... so the more recent "unanimous Supreme Court" findings are not exactly a surprise bolt out of the blue.

And given that the result is obviously inequitable in practice (which people like me and many others have been pointing out ever since the EAT), it might have seemed sensible to hold a consultation (or even make alternative proposals) a few years ago.

But much easier to do nothing (for the government if not for employers - who of course don't have a vote)!

Thanks (4)
Replying to Hugo Fair:
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By NotAnAccountant2
25th Jan 2023 16:26

Hugo Fair wrote:

why has it taken the government (specifically BEIS) so long to take any action?

The Harpur Trust vs Brazel case initially went to ET nearly 8 years ago and the claimant won at the subsequent EAT quite some time ago ... so the more recent "unanimous Supreme Court" findings are not exactly a surprise bolt out of the blue.

But much easier to do nothing

The cynic in me says that it was something else to blame Europe for. Fixing it would have tacitly admitted that it was crap implementation, not EU directives, that were to blame.

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Replying to NotAnAccountant2:
David Ross
By davidross
26th Jan 2023 11:35

"Much easier to do nothing"

Absolutely - the standard Civil Service response to any problem.

At least HMG are now doing SOMETHING. As others have said, this law is a [***] but it is a toss up whether Judges will try to change it (as they do when it suits them) or as in this case, codify the stupidity into a precedent

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By johnjenkins
26th Jan 2023 09:40

There will be a lot more cases like this over varying parts of our legislation. We do need a complete overhaul of our entire working practises.
The fact that people who look after our health and welfare have to go on strike to get recognised is appalling. Surely we have enough brains in this country to set something up so this never happens and it's not all to do with money.
Successive Governments have trundled from one crisis to another, patching things up, going for increased taxation instead of revamping the framework of our society. Now we are out of the EU we have a fantastic opportunity to do just that. Will it happen? We haven't got a politician with the necessary to do it.

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By tedbuck
26th Jan 2023 11:52

A lot of the problems these days stem from the basic lack of intelligence displayed by the judiciary. It can be seen in many areas where judgements are handed down without any contemplation of the likely consequences. The judiciary are supposed to be impartial but it is clear that a number are not preferring to appear to be woke than sensible.

If they come to a point where a judgement is clearly ridiculous the least they could do is say to HMG "This is stupid - change the legislation" but I suspect the presence of a head in an awkward place probably makes it difficult to think.

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By unclejoe
26th Jan 2023 15:26

I was once management accountant for a call-centre operation. The call-centre was staffed from 7am to 9pm and relied on a lot of staff who worked varying length shifts, and many were part-time. This suited them as they could work around family commitments. Holiday entitlements were complicated by the fact that different individuals would have different entitlements depending on length of service. The way we accommodated that for part-time and flexible hours workers was to effectively work out an hourly equivalent for holiday entitlement based on hours worked in the vacation year. Where the calculation indicated a part shift for vacation it was rounded up to the full shift or half day for that employee. It was simple and fair. Was it the correct way in law? I have no idea, but no-one ever complained.

Why can't politicians and civil servants [***] out of regulating such matters? Companies should be allowed to determine their own ways of handling such things. The only mandate should be that the method chosen is fair and equitable, and communicated to employees in an understandable way.

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