Following the recent decision by the Court of Appeal to dismiss the appeal brought by The Harpur Trust (employer) in favour of Brazel (employee) regarding the calculation of holiday pay entitlement, employers may be asking themselves, should they stop using the 12.07% method to calculate holiday pay? In case you are not familiar with this case, you can find a summary of the details here: https://www.employmentcasesupdate.co.uk/site.aspx?i=ed39807
If you are an employer that engages *part year workers then the answer is a resounding yes. Using the 12.07% method has been ruled as not being compliant with the Working Time Regulations 1998.
Although much has been made about the fact that using the 12.07% method results in lower holiday pay for part year employees, it is also possible that using the 12 week average pay method could result in a lower holiday pay amount, particularly for employees on variable hours.
To demonstrate this, let’s take the example of an employee engaged on a casual working arrangement who starts on Monday 1st April 2019 and leaves on Sunday 30th June 2019. The employee is paid the following amounts (one week in arrears).
Week 1 (paid Friday 12th April 2019) £300.00
Week 2 (paid Friday 19th April 2019) £350.00
Week 3 (paid Friday 26th April 2019) £350.00
Week 4 (paid Friday 3rd May 2019) £350.00
Week 5 (paid Friday 10th May 2019) £350.00
Week 6 (unpaid) £0.00
Week 7 (paid Friday 24th May 2019) £10.00
Week 8 (paid Friday 31st May 2019) £100.00
Week 9 (paid Friday 7th June 2019) £100.00
Week 10 (paid Friday 14th June 2019) £100.00
Week 11 (paid Friday 21st June 2019) £100.00
Week 12 (paid Friday 28th June 2019) £150.00
Week 13 (paid Friday 5th July 2019) £400.00
Total Pay £2660.00
Since the employee has worked for 3 months (13 weeks), their holiday entitlement using the 12 week average pay method would be as follows:
Pro rata holiday entitlement = 3 months/12 months x 5.6 weeks = 1.4 weeks
12 week average weekly pay = £2660.00 (as above, not counting the week not worked)/12 weeks = £221.67
Therefore, holiday pay owed on leaving = 1.4 weeks x £221.67 = £310.34
Using the 12.07% method however, the holiday pay owed on leaving would be higher:
£2660.00 (i.e. total pay for all weeks worked) x 12.07% = £321.06
Therefore, if you are an employer that does not employ part year workers but uses casual/zero hours workers and has been using the 12.07% method, it might not necessarily be the case that you will find yourself facing claims for underpaid holiday.
*part year worker: a term coined by Lord Justice Nicholas Underhill in The Harpur Trust v Brazel appeal case to describe somebody on a permanent employment contract who only works for part of the week for part of the year.