With summer holidays fast approaching, the Hazlewoods payroll experts consider how employees who work part time without standard working hours or do not work throughout the year i.e. term time only, may historically have been underpaid for their holiday entitlement.
A common method of calculating the holiday pay has been to pay 12.07% of the hours worked which is the percentage of holiday pay that a full-time worker accrues.
A recent employment appeal tribunal, Brazel v. The Harper Trust, ruled that when calculating holiday pay for an employee who does not have regular working hours, whether they are term-time workers or any other irregular working pattern, the correct approach is to work out the average pay in the 12 week period prior to the holiday being taken. This method, as described in section 224 of the Employment Rights Act, states that:
“…no account shall be taken of a week in which no remuneration was payable by the employer to the employee and remuneration in earlier weeks shall be brought in to bring the number of weeks up to twelve.”
Simply paying 12.07% annualised hours as holiday, or increasing hourly rates by 12.07% to include an element for holiday pay may produce the wrong result for employees and may leave the employer vulnerable to claims for unlawful deductions (i.e. for non-payment) from wages.
If you have been working on the 12.07% principle either as an amount paid in addition to hourly rates or as the basis for holiday entitlements paid when holidays are taken, you should assess whether there has been an underpayment and consider changing your approach for future holiday payments.