Major changes to staff holiday entitlement: are your workers affected?

Staff holiday entitlement has changed.

Now, it’s no longer just your full-year staff who are entitled to 5.6 weeks’ annual holiday. You need to provide this for all staff, even if they don’t work for you all year round.

This means you may need to change the way you calculate leave entitlement for certain workers.

And without updating your HR procedures or staff contracts, you could be at risk for unlawful deduction of wages. To discover how to protect your business, read on…

What’s changed, and why?

Seven years ago, a term-time-only music teacher (on a zero-hour contract), Ms L Brazel, claimed for underpayment of holiday pay.

Why?

Her employer capped her holiday pay at 12.07% of her annual earnings (more on this method later). As Brazel only worked for part of the year, she argued that her employer should have calculated pay based on her average earnings over the past 12 weeks instead - while she was in work. 

While her claim was initially rejected in a tribunal, the Supreme Court ruled in her favour.

Due to this ruling, all staff are now entitled to the same 5.6 weeks’ holiday entitlement per year – regardless of how many weeks they work. This means, even if your employee only worked three weeks of the year, you’d still need to give them the equivalent of 5.6 weeks’ paid leave.

Will this affect my workers?

That doesn't automatically mean every employee receives the same number of days off, though. A full-time employee would receive 28 days' leave because that's the number of working days in 5.6 weeks.

However, let's say your employee is on a part-time contract. They work 2.5 days a week, instead of the full-time equivalent. In this situation, they would receive 14 days' holiday - because that's 5.6 weeks' holiday based on their contracted hours of work.

This hasn't changed, and you can continue using the pro-rata method for these employees.

This update only affects your part-year staff - the workers you hire on permanent contracts, who only work for part of the year. This includes staff on:

• zero-hour contracts
• seasonal contracts
• variable-hour contracts
• term-time-only contracts
• agency contracts
• casual contracts

So should I change the way I calculate holiday entitlement for these workers?

Up until now, you may have used the ‘12.07% method’ to calculate staff holiday leave and pay.

That’s because the statutory holiday entitlement of 5.6 weeks is equal to 12.07% of the total hours worked in a year. So, to calculate holiday leave previously, you might have multiplied 12.07% by the hours, days, or weeks your employee worked.

You can no longer do this for part-year staff…

To calculate holiday entitlement, you’ll now need to find an average of your staff’s weekly earnings from the previous 52 weeks they worked.

If you have staff who only work part of the year but have a year-long contract, you’ll need to ignore the weeks they haven’t worked. You won’t be able to apply a pro-rata reduction.

Why was the 12.07% method problematic?

The 12.07% method was an easy formula to use – but it wasn’t always fair.

By taking this approach, staff don’t accrue holiday if they don’t work any hours in one week. So, their holiday accrual can end up falling below the minimum statutory entitlement under Working Time Regulations.

This typically applies to staff on zero-hour or term-time contracts.

If you continued with this approach, you’d be at risk of facing unlawful deduction from wages claims.

What will I need to do right now?

If you hire part-year staff, you need update their terms and conditions. To do this, make sure you provide affected staff with a written statement setting out their new entitlement. You should do this within a month of rolling out the change.

After communicating with your staff, you should update their contracts to reflect the new entitlement.

So, to make sure you’re legally compliant, you may need to:

• change your leave entitlement – to make sure all staff have 5.6 weeks of holiday
• change your method of calculating holiday pay
• review and update your staff contracts
• tell staff about the changes
• review and update your policies to offer all staff 5.6 weeks' paid leave
• compensate staff for holidays where you may have underpaid them

Without taking these steps, there’s a risk you may have to deal with tribunal claims or pressure from unions. So, it’s essential you review your HR practises and bring your documentation up to date. 

No pressure… leave it to Peninsula

Why give yourself unnecessary stress? Focus on your success, whilst your HR experts focus on:

• crafting up-to-date staff contracts and policies for you - with the correct staff entitlement.
• making sure your calculations are accurate and fair - giving you total peace of mind.
• keeping you safe from legal risk - with total employment law support. 

Legislation is confusing. So, it’s a good idea to speak to someone who can decode the jargon and tell you what you need to know – plain and simple – to keep you safe.

Leave that to us. Call our experts now on 0800 051 3685 and we’ll sort it.