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Supreme court ruling – Holiday Pay

The Supreme Court has ruled recently that paid holiday entitlement for part-time employees or zero-hour workers on permanent contracts, should not have this pro-rated for weeks they usually do not work.

This will mean the ACAS recommendation of the 12.07% method (also known as the “percentage method”) for calculating the holiday pay for these type of workers, is no longer appropriate. This method had aimed to ensure that casual workers build up holiday entitlement in the same proportion to hours worked as a standard worker.

It is not, however, referenced in the WTR. Under the Working Time Regulations 1998 (WTR), all workers are entitled to 5.6 weeks’ holiday each year. The WTR make no provision for pro-rating this entitlement for employees who only work for part of the year, for example during term time only.

Under the relevant legal provisions of this case, holiday pay for an individual with no normal hours of work is based on their average pay over a 52-week reference period, immediately before the holiday (or a 12-week reference period prior to April 2020). As part of the calculation of average pay, you ignore weeks when there was no pay and bring earlier weeks into account.

Employers who have part-year workers will now need to review how they calculate holiday entitlement and if they have been prorating holiday entitlement for such workers, they will need to change their processes with holiday pay for all workers based on the calendar week method, rather than the percentage method.

Employers also need to be aware of the risk of claims for historic unlawful deduction from wages from part-year workers whose holiday entitlement has been previously prorated. If the percentage method for part-year or zero-hour workers has been used, you may need to consider re-calculating the holiday pay owed for the past 2 years and repay them those sums.

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