88% of employers fail to grasp impact of Harpur Trust holiday pay

Most employers, 88%, don’t fully understand the impact of the recent ruling by the Supreme Court in the Harpur Trust case on the correct method for calculating part time workers’ holiday pay. It means they risk failing to budget for the extra cost, as well as reputational damage and, potentially, employment tribunal claims.

A reminder. This is the case dealing with the correct method of calculation to be applied to the contract of a part-time employee, a music teacher called Lesley Brazel. The court ruled that workers like her who are only employed during some weeks of the year, but who have a contract which lasts for the full year, are entitled to a full year’s statutory holiday entitlement, which is 5.6 weeks per annum. It dismissed the argument that employers should be able to reduce part-year workers’ holiday entitlement on a pro-rata basis to account for weeks they have not worked. That approach favours part-time workers because it means they receive holiday pay representing a higher proportion of their annual pay than full-time or part-time workers who work regular hours. That is simply an anomaly of the legislation, but it’s a key point that employers need to understand.

The research on this is covered by People Management. The survey by WorkNest found that 88% of employers didn’t fully understand how the correct method of calculation should be applied and only 11% had updated their procedures on holiday pay following the ruling. Yet almost a third said they thought the new method of calculating holiday pay would impact between 10% and 50% of their workforce. The rest of the article quotes various experts advising employers not to bury their heads in the sand in the hope they won’t be affected. 

This case does affect every sector of business and, in recent weeks since this ruling, we’ve been helping a number of clients review their contracts, especially clients in the university sector where this is now a big issue. Earlier Helen Corden joined me by video-link to discuss this, and I asked her why this case is especially relevant to this sector:

Helen: “It's particularly relevant to the university sector because they're a sector which have employees and workers on a vast number of different types and varieties of contract. So, let's take some examples. They have people on permanent contracts, but only work part of the year, so contracts which are aligned to that which was being assessed in the Harpur Trust case, but they also have other shorter term contracts, fixed term contracts, for example, that may last a year, less than a year, more than a year, during which individuals only work for part of the year, or a number of weeks of a year. So for example, some universities will engage people for a term from September to December to teach a particular course, but then that individual won't work again until the summer term when they're needed for the exam and the marking in relation to the course that they've taught earlier in the year. So, that's a particular example where it's not a typical term time only contract, but it is a contract where the employee or the individual is only working part of the year and although it's not completely analogous with the facts that were in the Harper Trust case, it is indeed thought that those types of contract, and the people on those arrangements, will also benefit from the judgment of Harpur Trust.”

Joe Glavina: “The advice in light of Harpur Trust is for universities to review their contracts. Assuming they do that, what’s the next step? So, can you explain where that review leads to?”

Helen: “Yes sure. So there are different options for universities once they've reviewed all their different types of contracts. So they should be looking at all the contracts where they apply a percentage calculation for calculating holiday pay and then they need to look at what changes need to be made in terms of paying holiday pay correctly. It may well be, for example, that where universities are applying a higher percentage calculation for the payment of holiday pay – so we know that some universities, for example, pay a 18% contribution or even higher – and that's because they take into account contractual holiday and also their closure days. So, depending upon how many weeks of the year a particular individual works, their percentage calculation might actually be sufficient in terms of giving them the correct amount of holiday pay, even if you are calculating it in accordance with the correct method under the working time regulations. So, for their for those types of individuals it may well be that universities decide that they want to continue with that percentage calculation because they know that actually it satisfies the holiday pay that the individual is entitled to. For others, it'll mean looking at well, let's apply the correct calculation, and what's the best way of doing that, because it really becomes an administrative burden each time you have to calculate the holiday pay in the correct manner because what you have to do is calculate it looking at an average over the previous 52 weeks. Now, if you're doing that every time an individual takes their holiday then that becomes a big administrative burden, especially when you've got hundreds or, potentially, thousands of employees on these different types of contracts. So, it's then looking at options around can you designate a period of holiday, just one period of holiday per year, so you designate the 5.6 weeks, for example, to be taken during the summer. So that's another potential option. An alternative option is whether you actually avoid putting people on the permanent contracts when they're only working for part of the year and instead move to shorter fixed term contracts so that the holiday pay is only calculated on those fixed term contracts and there are no weeks within those contracts where the individuals aren't working. However, I think serious consideration needs to be given to that because that actually may be regressing from the position where, previously, universities have been very keen to ensure security of employment, for example. So if they then move back to putting people on shorter, fixed term contracts that's moving away from that and is probably seen as regressing from the movement which has been put in place over the last few years.”

Joe Glavina: “We know that as a result of this case some part-time workers will be entitled to windfall payments based on the revised calculation, whilst many other members of staff will not be. That disparity is potentially an issue, isn’t it?”

Helen Corden: “Yes, I think it is an issue that needs to be on the HR radar and something that they need to consider and think about how they're going to respond to any questions that they get on it. I think it becomes particularly acute with employees who are engaged throughout the year but are working less than less than 30 weeks in the year because they're the individuals who will get this windfall. Now, in terms of the full timers, the response is, well, we're required to pay them in accordance with the working time regulations, and the fact that they've got this windfall is largely out of our control if we're applying the law correctly. So, I do think there is definitely the need for HR to make sure that they have their communications in place ready to respond to any queries that they get around this point.”

Helen has written about this case in some detail, including the calculation method that should now be used in light of Harpur Trust. That’s ‘Part-year worker holiday pay ruling will raise costs for UK employers’ and it is available from the Out-Law website. We have put a link to in in the transcript of this programme.

LINKS
- Link to Out-Law article: ‘Part-year worker holiday pay ruling will raise costs for UK employers’
- Link to judgment: Harpur Trust v Brazel