The Government has started a consultation on holiday pay to review how holiday entitlement is calculated for part-year workers and workers with irregular hours.
The Judgment of the Supreme Court in Brazel v Harpur Trust challenged the way organisations had often been calculating holiday entitlement for part year workers and workers with irregular hours. Our previous article sets out what the court decided and how it impacted holiday entitlement calculations.
Employment lawyers, HR professionals and employers have since been grappling with what the Judgment means and how they can mitigate the financial impact of, in some cases, being legally obliged to pay high amounts of holiday pay which were disproportionate to the hours worked.
What has been launched?
The Government has now started a consultation to review how holiday entitlement is calculated for part-year workers and workers with irregular hours. You can access the consultation by following this link.
The consultation closes on 9 March 2023 and businesses and workers are being urged to have their say. Over recent years the law around holiday pay and entitlement has become increasingly complex, making it hard both for businesses to apply with any certainty and for workers to understand their rights. The consultation will hopefully be the start of a journey to a simpler method of calculating holiday entitlement and pay, which is fair to both employers and workers.
What does the consultation on holiday pay seek input on?
The aim of the consultation is to gather feedback from employers and workers on a proposed method of calculating holiday entitlement and pay which would:
- avoid workers receiving a disproportionate amount of leave compared to hours worked;
- provide clarity to workers and employers; and
- ensure that holiday entitlement is calculated consistently for workers with irregular hours.
What approach might be taken?
The Government have outlined their preferred approach, which would effectively see the return of the 12.07% method that many organisations and workers will know well. Prior to the Supreme Court Judgment in the Brazel v Harper Trust case the Government and ACAS both recommended the use of the 12.07% method, under which workers received holiday entitlement equivalent to 12.07% of the hours they worked.
The Government has set out plans for a fixed reference period, so that holiday entitlement would be based on 12.07% of hours worked in the previous 52 weeks. This would be consistent with the 52-week reference period using for calculating holiday pay though for holiday entitlement, it is proposed that weeks in which no work was completed would still count within the reference period. This would give workers a fixed pot and might make it more likely that workers with irregular hours would actually take leave.
As using the fixed reference period of the previous year will not work in the first year of employment, an accrual method is proposed for the first year of employment. Under the accrual method employers would need, at the end of each month, to calculate 12.07% of hours worked in the month.
Is there anything new in the consultation?
The proposals go further than previous Government guidance, as they also look to define how a day’s leave is calculated i.e. how much of the pot of leave does a worker use up to take a day off when they work variable hours? This has been a headache for employers for years, so clarity in this area will be very welcome. The Government’s preferred approach here is to use the reference period to calculate a flat average working day so that, for example, each day’s leave would use up six hours of the leave pot. The alternative would be to calculate averages from the reference period for the specific day to be taken off (e.g. a Monday), and then deduct that from the pot. The Government believes that calculating averages would be burdensome so their preferred approach is the flat rate method.
The consultation also looks at how agency workers’ holiday pay should be calculated.
How can you get involved?
Holiday entitlement and pay are important rights for workers and a cost which business must factor in, as it can be considerable, especially under the law following Brazel v Harper Trust. It is very unlikely that these rights are going to disappear, even though they have their origins in European legislation, and therefore vital that workers and business alike engage in this consultation and have their say.
Responses can be submitted online at: https://beisgovuk.citizenspace.com/lm/holiday-entitlement or by email to holidayentitlementconsultation@beis.gov.uk. Full details are in the consultation document.