The Court of Appeal has held that the use of the 12.07% multiplier as a way of meeting holiday pay entitlement for part-time staff is not legally compliant.
What Does the Law Say?
All workers are entitled to 5.6 weeks' paid leave in each year under the Working Time Regulations 1998.
In a case which has far reaching implications for academies, the Court of Appeal considered whether it was lawful to pro-rate the leave and pay entitlement for permanent staff who only work for part of a year and examined the use of the 12.07% multiplier as a way of meeting holiday pay entitlement.
It was asserted that the 12.07% multiplier is not compliant with the provisions for calculating a 'week's pay' for employees with no normal working hours under section 224 of the Employment Rights Act 1996 (ERA). That provision requires employers to calculate average weekly pay over the 12 weeks actually worked immediately prior to the relevant holiday being taken (discounting any weeks where there was no pay at all).
This decision has the effect of reflecting an individual's actual working hours and pay if they work less than full time hours each week without factoring in that the individual may only work part of the year. In this particular case, the member of staff received holiday pay equating to 17.5% rather than 12.07%.
This means that an employee who works part of the year only (such as term-time only staff) is entitled to receive the same holiday entitlement as an individual who works all year round (46.4 working weeks) (assuming the same working hours each week).
Proportionally this places part-year staff in a better position that year-round staff.
It is possible that this matter will be appealed to the Supreme Court. If such an appeal is successful, the pro-rata principle could be re-instated. It may be some time before this is determined and in the meantime the Court of Appeal decision is binding.
Who Is Affected?
This judgement potentially affects:
- Any worker who has a permanent employment contract and is employed throughout the year but only actually works for part of the year (such as term-time or term-time plus workers).
- Any worker who works irregular hours, whose holiday pay entitlement has been calculated using the 12.07% (or similar) multiplier.
What Should Schools Be Doing?
We recommend that schools:
- Assess which members of staff are potentially caught by this decision.
- Update contractual documents to reflect the decision (although there may be future developments).
- Consider whether contractual arrangements could be changed for any new (and potentially existing staff) if appropriate, ie through the use of self-employed or fixed term temporary contracts.
- Consider changing the way in which holiday entitlement has been calculated and paid for all other staff going forward. This is likely to involve prescribing when holiday entitlement will be taken, and paying this based on the preceding 12 weeks' average pay.
- Quantify the risk of arrears claims and determine a strategy in relation to these. Any such claims will be brought as unlawful deduction from wages claims and need to be brought within three months of the last deduction, and so changing pay arrangements in line with the Court of Appeal decision will crystallise the timeframe for bringing claims. In accordance with current UK legislation, any claims brought after 8 July 2015 will be limited to two years' arrears for each member of staff from the date of claim (although this backstop may in itself be challenged as unlawful).