You may have heard in the press recently about the ruling of the UK Supreme Court in the Harper Trust vs Brazel case, which has affected the way holiday pay is calculated for contract and temporary workers.

This will affect any candidate who is processed via your recruitment agency under PAYE or to an Umbrella company as this could affect the amount of holiday pay they are accruing/being paid.

The Case 

Ms Brazel, a music teacher engaged by Harpur Trust on a permanent zero-hours contract, who worked as and when there was a demand for her service, brought a claim before the Employment Tribunal for unlawful deduction from wages by underpayment of holiday pay against her employer. 

In line with ACAS, Harpur Trust calculated Ms Brazel’s holiday pay based on 12.07% of the pay received by her for the hours she had worked in the previous term and at the end of each school term she was paid this accrued holiday pay. 

The Supreme Court’s Decision 

The school’s appeal was unanimously dismissed by the Supreme Court. It ruled that the ‘Percentage Method’ of calculation was unlawful and made it clear that part-year workers are to have the same entitlement to 5.6 weeks’ holiday as full-year workers. 

For workers whose pay varies like Ms Brazel, their holiday must be pay calculated based on their average earnings over the previous 52 working weeks, disregarding any weeks in which pay wasn’t earned.  

Which Workers Are Affected? 

Those affected by the judgment are employees and workers who work for part of the year under a permanent or continuous contract with irregular hours such as term-time only workers, seasonal workers, bank staff, zero-hour contracts and workers engaged under umbrella contracts.

Part-time vs Part Of The Year Worker 

Employees and workers who are engaged on a contract of employment but are only required to work at certain periods during each year are considered “part of the year” workers, such as workers who are only engaged to work during the school term, not the holidays.

If employees and workers are engaged on a permanent contract of employment but with fewer hours than a full-time worker or on a fixed-term contract are considered part-time workers. 

Contract of Services vs Contract of Employment? 

If you engage your agency workers on a contract for services rather than a contract of employment, then these workers might not be affected by the judgement.

It is advisable to review your contract of services to ensure it clearly stipulates that your workers are only engaged when on an assignment and there is no suggestion of an ongoing contractual relationship. 

If you are engaging your works on a contract of employment, then part-year workers will be entitled to the full 5.6 weeks holiday leave even if they don’t have fixed hours. 

You should review your holiday practices and contracts to understand whether they comply with the Supreme Court judgment, furthermore, you should provide your workers with a revised contract and a written explanation as to the impact the change will have on them, if any. 

Umbrella Workers, How Are They Affected? 

Most workers engaged with an umbrella company, have an overarching employment contract, whereby employment may continue between assignment therefore if umbrella companies calculate the holiday entitlement or pay based on 12.07% of time worked, they will need to review this agreement. 

Potentially the umbrella companies might increase their charges to cover the additional holiday pay, furthermore, they might try to recover the cost from the agency if the contract allows them to recover any shortfalls. 

Umbrella companies may choose to move workers to a contract of services however workers then will not be able to apply for travel and subsistence expenses.  

How To Calculate Holiday Now?

If a worker is on a permanent or continuous contract for part of the year, then their holiday pay should be calculated based on their average earnings over the previous 52 working weeks. 

To be entitled to 28 days of holiday part-year workers when they are working, they have to be working five days a week, otherwise, their holiday allowance will depend on the regular working pattern of the particular worker. 

For example: if a part of the year worker regularly works three days a week, then their statutory holiday entitlement will be 16.8 days (5.6 x 3 = 22.4) 

Workers on different types of contracts who don't have a regular working pattern, or guaranteed hours, should have their leave entitlement expressed in weeks. The Government has provided guidance on how to calculate their entitlement, which can be found here. 

TBOS Recommendations

• Review your contract of services to ensure it clearly stipulates that your workers are only engaged when on an assignment and there is no suggestion of an ongoing contractual relationship.
• If your workers are on a contract of employment.
• Review your holiday practices to understand whether these have complied with the Supreme Court judgment – This may involve recalculating their holiday pay allowances if they are within the scope of this judgement. 
• Potentially engage your workers on a temporary contract which only covers the specific period of time that they work – Do not have open-ended or “Rolling” contracts.
• Check whether you are potentially a liability for workers who have been underpaid in previous years. 
• Check with your umbrella companies to see how they are dealing with the changes and ask for their updated holiday policy.

If you require any support in relation to any of these issues please do not hesitate to get in touch with TBOS on 03455046333.

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