Understanding holiday pay is essential for workers, especially for those on zero-hour/seasonal only contracts.

When the Supreme Court handed down its judgement in Harpur Trust v Brazel in 2022, it confirmed that holiday entitlement and holiday pay for part-year workers had to calculated in accordance with the Working Time Regulations and Employment Rights Act as they then stood. However, subsequent legislative changes have reintroduced a 12.07% accrual method for irregular-hours and part-year workers for leave years beginning on or after 1 April 2024.

These reforms apply specifically to ‘irregular-hours workers’ and ‘part-year workers’ as defined in the Working Time Regulations. Workers with regular hours throughout the year continue to receive statutory holiday entitlement under the existing rules.

Facts of the Case

For those of you not in the know, the facts of this particular case are as follows: Mrs Brazel was a visiting music teacher employed by Harpur Trust. She started working in 2002 on a permanent contract basis but working term time only, and her working hours varied each week depending on when her pupils had lessons. So, her hours were irregular, and she only worked part of the year. Like most teachers, Mrs Brazel was required to take her annual leave during the school holidays. Her holiday pay during such periods was calculated on the basis of the hours worked in the previous term.

The Supreme Court called this method the ‘Calendar Week Method’, as Harpur Trust calculated pay according to the weekly average pay spanning over the previous 12-week period. This approach was in accordance with section 224 of the Employment Rights Act 1996.

In 2011, Harpur Trust reviewed the way they calculated Mrs Brazel’s holiday pay and as a result changed their approach to the guidance advocated by ACAS at the time, meaning she received 12.07% of her usual pay. The Supreme Court refer to this as the “Percentage Method”. Mrs Brazel challenged this change in approach and the case has gone all the way up to the Supreme Court, with the Supreme Court finally agreeing with the Court of Appeal.

What does this mean for employers?

The Supreme Court, having reviewed the legislative provisions set out in the Working Time Directive and the Working Time Regulations as well as the Employment Rights Act, have determined that section 224 of the Employment Rights Act which dictates the rules on holiday pay calculations for workers with irregular hours, must be followed.

At the time of the Supreme Court’s decision, employers could not use the percentage method to determine statutory holiday entitlement for part-year workers. However legislation introduced in 2024 has since provided a statutory accrual method and has re-introduced the option of rolled up holiday pay for qualifying irregular hours and part-year workers.

Workers with regular hours continue to receive 5.6 weeks’ statutory leave. For leave years beginning on or after 1 April 2024, statutory holiday entitlement for qualifying irregular hours and part year workers may be calculated using the statutory accrual method, under which leave accrues at 12.07% of hours worked. Since 1 January 2024, employers may lawfully use rolled-up holiday pay for irregular-hours workers and part year workers, provided it is calculated correctly and clearly identified on payslips. Rolled-up holiday pay should generally be calculated at 12.07% of pay and shown separately on the payslip.

Current legislation specifically provides for statutory holiday accrual for irregular-hours and part-year workers. Under the statutory accrual framework, holiday entitlement accrues at 12.07% of hours worked during the relevant pay period.

Employers using rolled-up holiday pay remain responsible for ensuring workers are able to take their statutory holiday entitlement and should actively encourage workers to take their statutory holiday entitlement.

How can employers calculate holiday pay?

For irregular-hours and part-year workers, employers may either:

  • Accrue holiday entitlement at 12.07% of hours worked and pay holiday when leave is taken;

Or

  • Use rolled-up holiday pay, paying an additional amount alongside normal pay.

What should employers do?

Employers who engage irregular-hours or part-year workers should review their workforce to identify which individuals fall within the relevant statutory definitions and ensure that contracts, holiday policies and payroll processes reflect the current legal requirements.

Businesses should review whether their current arrangements remain appropriate, and where eligible, decide whether to consider paying holiday when leave is taken using the statutory holiday pay calculation rules or adopt rolled-up holiday pay arrangements.

Regardless of the method adopted, employers should also continue to encourage workers to take their annual leave and ensure they access their full entitlements.

Historic claims relating to holiday pay calculations may still arise in some circumstances, particularly regarding periods before 2024 reforms took effect and where workers were previously underpaid. Employers should primarily focus on ensuring compliance with the current statutory guidelines.

Employers should review their contracts, policies and payroll arrangements to ensure they remain compliant with the current statutory framework governing holiday entitlement and holiday pay.