Are the rules for holiday calculations changing again?

Last year, the rules around calculating holiday leave and pay for part-year staff changed.

The Supreme Court ruled that employers had to stop pro-rating holiday entitlement for these workers.

However, as explained below, this could now be set to change again…

A quick reminder on last year’s ruling…

In July 2022, the UK Supreme Court heard the case of Harpur Trust vs Brazel (more on that here).

This case changed the way employers calculated leave for part-year workers.

As the name suggests, a part-year worker is someone on a permanent contract who doesn’t work every week of the year. This includes:

• Term time workers
• Agency workers
• Casual workers
• Zero hour workers
• Irregular hour workers

The Supreme Court decided that employers should no longer pro-rate holiday entitlement for these workers.

This means that all permanent part-year staff have to receive at least 5.6 weeks’ paid annual leave in each holiday year.

How did this change holiday calculations?

The ruling meant that, if you hired part-year staff, you needed to ditch the “12.07% method” to calculate their holiday leave and pay – or risk facing tribunal claims.

Instead, you should calculate holiday pay using your worker’s average weekly wage from the previous 52 weeks. You have to ignore any weeks where they didn’t work.

As it stands, these are still the rules you need to follow for holiday pay.

And, as outlined above, you have to provide 5.6 weeks’ annual leave to all permanent part-year workers. You can’t reduce this on a pro-rata basis.

Could this rule change again?

This ruling has created major disparities between workers.

Under this ruling, a worker on a permanent contract who worked two weeks each year – like an exam invigilator – would still receive 5.6 weeks’ paid holiday.

That’s more weeks of leave than time spent actually working.

It also means that part-year workers could receive more holiday than part-time staff who have worked the same (or more) hours over that year. So, it’s easy to see why many workers and employers are claiming this new method is unfair.

As a result, the government is proposing to change the way employers calculate holiday entitlement for part-year workers. To do this, the government has launched a consultation to gather feedback on its recommendations. The consultation will be open from 12th January to 9th March 2023.

In other words, the government is rethinking the current approach. And depending on the response it receives, the way you calculate holiday entitlement could soon change again…

What’s the government proposing to change?

The government is suggesting that employers should be able to pro-rata holiday entitlement for part-year staff. This is to make sure their leave is proportionate to the hours they work.

To do this, the government plan to legalise the 12.07% method to calculate holiday entitlement.

By law, everyone is entitled to a minimum of 5.6 weeks of holiday a year.

The idea behind the 12.07% method is that the standard working year is 46.4 weeks. 5.6 weeks is 12.07% of 46.4 weeks. So, employers can multiply 12.07% by the hours someone worked to get their annual holiday entitlement in hours.

What are the next steps?

The government won’t seek to roll out any changes until the consultation ends. And even then, it could take a while for any new proposals to come into force.

So for now, it’s important to keep following the Supreme Court’s rules to stay safe from legal risk. You should continue to find an average of your worker’s earnings from their previous 52 weeks of work.

If the law does change, this means new calculations and new contracts. Which is a lot for you to manage.

But as a Peninsula client, your HR experts are there to support you. Whether it’s support with legal updates, documentation, or advice, you have peace of mind all year round.

But in the meantime, to keep on top of other important updates, give us a call. And if you’re not yet a client, call 0800 029 4384 to get free advice from an expert.