Schools, academies and educational establishments will need to review their holiday pay calculations after a school run by the Harpur Trust lost its appeal against a piano teacher claiming her holiday pay had been miscalculated.
The decision could also impact any employers using casual, bank or zero hours workers.
How much holiday are workers entitled to?
In the UK, all workers are legally entitled to 5.6 weeks holiday per year.
For part-timers with normal working hours, their holiday must be pro-rated (for example, if they work three days a week, their holiday entitlement is still 5.6 weeks, but pro-rated is 16.8 days).
But there is no legal requirement to pro rata the holiday for a part year worker – that is someone who works irregular hours during the year. Many employers therefore follow the ACAS approved route of multiplying the hours worked by 12.07 per cent (12.07 per cent being the percentage of weeks’ holiday in a working year) to get the holiday entitlement.
How should holiday pay be calculated?
It depends on the hours worked and the pay normally received. If a worker has normal working hours, their holiday pay is their normal weekly pay. What is “normal weekly pay” has led to various recent cases which you can get a summary of here.
If a worker’s hours vary each week, their weekly holiday pay is based on the average weekly hours worked over the 12 weeks prior to the holiday (although weeks with no work are disregarded).
12.07 per cent approach was incorrect
The piano teacher was employed on a permanent contract working irregular term time only hours. So for large parts of the year she had no work at all. She was entitled to take 5.6 weeks’ holiday a year which had to be taken during school holidays.
By agreement, Harpur paid the piano teacher three equal payments for holiday pay at the end of each term. Her holiday pay was based on her hours worked during the term, multiplied by 12.07 per cent and then divided by three (representing a third of the total holiday for the year).
The piano teacher argued that this was incorrect and that the law was very clear about how her holiday should be calculated. Her 5.6 weeks’ holiday should have been paid using the 12 week average calculation; not the 12.07 per cent calculation. As a term-time only worker that would result in her holiday pay being 17.5 per cent of earnings compared to 12.07 per cent of earnings for a full-time employee.
The Court of Appeal agreed. Even though this would have the bizarre outcome of the teacher receiving more holiday pay compared to a full-time teacher, this wasn’t unfair and wasn’t unlawful. What was important was that whilst on holiday, they were paid what reflected their normal working pattern.
Who does this impact and what should you do now?
The Harpur Trust can appeal the decision to the Supreme Court so it may be best to sit tight and wait for the outcome of the appeal. However, all three judges in this case came to the same conclusion which doesn’t give much hope that an appeal will be successful.
Therefore, any school or education provider who uses the 12.07 per cent holiday pay calculation for term time only workers employed on a permanent contract with variable hours should now revisit their holiday pay calculations, provision for historic liabilities and adopt the 12-week average pay approach going forward. Employers should also remember that the 12-week reference period will be increased to 52 weeks from 6 April 2020.
Employers of casual workers using the 12.07 per cent calculation may also need to revisit their holiday pay calculations as it is possible the decision could apply to them.
There may be some workers who bring complaints off the back of this case and an analysis of those complaints should be considered before any compensation is considered. The circumstances may be different or there may be limitations on the amount the worker can claim due to how long ago their holiday was taken.
If you have any concerns regarding holiday pay compliance, please contact Charlie Barnes.