Government Consultation on Calculating Holiday Entitlement
The Government has launched a consultation on calculating holiday entitlement for part-year and irregular hours workers.
In July 2022 the Supreme Court held in Harpur Trust v Brazel that the amount of leave to which a part-year worker under a permanent contract is entitled is not required to be pro-rated so that it is proportionate to the amount of work they perform each year. As a brief reminder, part-year workers do not work for certain parts of the year but still remain under a contract (e.g. a teaching assistant).
The Supreme Court went on to find that the 12.07% method of calculating holiday entitlement is contrary to the statutory method prescribed by UK legislation. The Supreme Court concluded that the ‘Calendar Week Method’ represents the correct process. The ‘Calendar Week Method’ divides the total hours worked over the 52-week reference period (excluding the weeks not worked) by 46.4 to find the average length of a working week. This would then be multiplied by 5.6 to give the worker’s total annual statutory holiday entitlement expressed in hours
The Government’s consultation is a response to this Supreme Court decision. Below we have summarised the Government’s proposals to the law on calculating holiday entitlement.
(i) 52-week holiday entitlement reference period
The new law would allow employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion with the total annual hours they work. The consultation paper suggests that the simplest way to do this would be to introduce a 52-week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period.
The existing holiday pay reference period uses the last 52 weeks in which a worker actually works, which is likely to stretch beyond the preceding 52 weeks for workers with irregular hours and part-year workers. In comparison, the proposed holiday entitlement reference period would use the most recent 52 weeks, including those weeks without work.
(ii) Calculating holiday entitlement using the 52-week reference period
The Government’s proposed method of calculation differs from the ‘Calendar Week Method’ in two ways:
- As described above, the 52-week reference period would be based on the preceding 52 weeks in which a worker was in employment, including any weeks without work.
- Rather than dividing the total hours worked by 46.4 and multiplying by 5.6, the Government proposes to allow employers to simply multiply the total hours worked by 12.07%.
In other words, statutory annual leave entitlement for part-year workers and workers with irregular hours should be calculated by (a) calculating the total hours a worker has worked in the previous 52 weeks (the reference period), including those weeks without work; and (b) multiply the total hours worked by 12.07% to give the worker’s total annual statutory holiday entitlement in hours. The calculation is:
- Hours worked in previous 52 weeks x 12.07% = annual statutory entitlement in hours.
(iii) Fixed reference period
The Government proposes to use a fixed reference period to calculate holiday entitlement. At the beginning of a new leave year, the worker’s holiday entitlement would be calculated based on previous 52 weeks. This would give a worker a fixed pot of annual leave that they would then be able to draw from throughout the leave year, in line with how the legislation works for workers with regular hours.
(iv) Holiday entitlement for the first year of employment
The 52-week holiday entitlement reference period assumes that a worker has been in employment for at least 52 weeks. Under regulation 15A of the Working Time Regulations, workers in the first 12 months of a job effectively receive 1/12th of their annual holiday entitlement at the start of each month. The consultation suggests a similar approach could be used for workers with irregular hours, although holiday entitlement would need to be calculated at the end of each month based on the actual hours worked in that month to be proportionate to the time worked. This accrual-based system would only be required for the first year of employment until the 52-week entitlement reference period could be used. The calculation is:
- Hours worked in previous month x 12.07% = monthly statutory entitlement in hours
(v) Calculating holiday for a particular day off
In order to calculate holiday for a particular day off, the Government consultation recommends using the reference period to calculate a flat average working day. When a worker took a day off, they would take off the number of hours calculated from this average working day.
The consultation closes on 9 March 2023 and the government response to this consultation will be published “in due course” after the consultation closes. In the meantime, the calculation of holiday entitlement remains a complicated area of uncertainty for many businesses. Please feel free to contact a member of the team if you have any questions on the Government’s consultation.
Louis Howlett, Solicitor