Calculating your employees’ holiday pay as 12.07% of their hours? You could be underpaying them if they only work part of the year
Holidays used to be simple: you dragged a caravan to North Wales or went to a travel agent to book a package holiday somewhere sunny with plentiful fish and chips.
But in 2019 you’re spoilt for choice: do you do glamping, a staycation, eco-tourism, a wellness retreat, winter sun or volunteering?
The 12.07% approach
Likewise, the straightforward concept of a right to paid holiday has become ever more complicated for employers to administer. A recent case illustrates how even official guidance can get the law wrong – with serious consequences for employers.
Casual staff and those employed under zero hours contracts are entitled to 5.6 weeks’ paid holiday each year, as with any other worker. But how do you know how many days/hours are in a week’s holiday when working hours are unpredictable?
For years, employers have used the approach recommended in ACAS guidance: The worker’s holiday entitlement will be equivalent to 12.07% of the hours they work in the year (and they receive their usual hourly rate for the holiday). But the Court of Appeal has now cast doubt on this approach.
The case involved a teacher who was employed under a permanent contract but only worked during term-time (and had to take her annual leave during school holidays). Her holiday pay was calculated as 12.07% of the hours worked in each term and paid as a lump sum at the end of the term.
This meant that she received less holiday pay each year than if the school had calculated her average pay over the last 12 weeks of each term (as envisaged by the Working Time Regulations) and then multiplied it by 5.6.
She argued that that was precisely what the school should do to calculate her holiday pay and the Court of Appeal agreed and ordered the school to compensate her for the underpayments.
The Court rejected the school’s argument that it was unfair for an employee who worked only part of the year to receive the same amount of paid annual leave as an employee who worked the whole year.
Zero hours staff
The impact of the Court of Appeal’s ruling isn’t limited to schools – it could potentially affect any zero hours employees on permanent contracts who work for part of the year and who receive holiday pay calculated at 12.07%.
Unfortunately, it leaves lots of practical questions unanswered.
Employers will need to assess their potential exposure, but may wish to wait for further clarification from the courts or updated ACAS guidance before changing their practices.