The way we calculate holiday for ad-hoc workers has changed
Following a recent ruling by the Supreme Court, the way in which businesses calculate holiday for ad-hoc workers has changed. The long-standing 12.07% calculation of hours worked is now outlawed. Employees and workers who work part of the year, such as term time and zero hours workers on continuous contracts, are entitled to the same amount of paid annual leave as those who work a full year, i.e. 5.6 weeks holiday. This ruling does not affect the calculation of holiday for those who work regular hours each week, whether they work part-time or full-time hours, as they are already statutorily entitled to 5.6 weeks of holiday each year based on their normal pay.
In the case of Brazel v Harpur Trust, the Supreme Court ruled that Ms Brazel, who worked term time only, was entitled to the same amount of holiday as someone who worked a full 52 weeks of the year. Although the contract of employment stated that Ms Brazel was entitled to 5.6 weeks holiday, it was the calculation of the holiday entitlement that was wrong. Calculating entitlement on a pro rata basis of 12.07% basis of hours worked is wrong, ruled the Supreme Court. The Court recognised that this may give some ad-hoc workers higher pay than they would receive if they were full-time workers but felt this was unlikely. There is also no law which says that full time workers cannot be treated less favourably than part-time workers.
If you employ casual and zero-hours employees for fixed short periods of time, the calculation for their holiday entitlement will still be based on a pro rata basis of 12.07% for how many hours they have worked, as it is currently.
We have advised our clients for many years that if you employ people on continuous zero hours contracts who work for you every week, they are not true zero hours contracts. Zero hours contracts are designed for those who only work with you periodically and at the end of each work assignment, employment should be terminated and a P45 issued to evidence the end of employment. There should be no further employment for at least two weeks to show that there has been a break in employment and it is not continuous. We are now advising employers to make the break between periods of employment four weeks, as that was due to come into being in 2020, although its introduction has been delayed. We believe it is good practice for employers to give four weeks as a minimum break to truly evidence the ad-hoc nature of the work the individual is being asked to do.
For many of our clients though, it is easier to employ zero-hours people on a continuous basis as they may do some hours one week and some more hours the next week or the week after, with a break in between. It is administratively easier to employ workers on this basis, but employers will now need to be aware of the change to the way holiday entitlement and pay must be calculated for those with that continuous contract arrangement.
So how do we calculate holiday for our continuously employed ad-hoc workers?
Rather than the 12.07% calculation based on actual hours worked, it is now recommended that employers use a calendar year method, which averages pay over a reference period, which does not include weeks in which there is no pay. The reference period begins immediately before the holiday begins, bringing earlier weeks into account when there are weeks of no pay. Pay is then averaged for that reference period to give the amount that should be paid to that person while they are on holiday.
As an example, if someone works for six months of the year on an ad-hoc basis but on a continuous contract, they would be entitled to 2.8 weeks of holiday, paid at their average weekly wage based on 52 working weeks. If it is three months of employment, they would be entitled to 1.4 weeks of holiday, paid in the same way. While the Supreme Court interpreted the wording of the Working Time Regulations to the letter, they did not provide guidance on how to calculate holiday entitlement for ad-hoc workers into days or hours. This does not provide any help on how to work out what an ad-hoc worker would be entitled to be paid if they want one day of holiday, especially as the Government guidance now says that public holidays can be paid to ad-hoc workers as part of their statutory entitlement.
One way around it may be to pay for set weeks at a time, such as two weeks of summer holiday, Christmas weeks of business shut down and perhaps some time over Easter, so that the entitlement to pay the 5.6 weeks holiday is met. However it is early days yet, so we suggest our clients discuss with us any plans to pay holiday and over what reference period, before you do so.