Calculating holidays should be simple - but for workers with irregular hours this has always been problematic. Employers often simply pro rate holidays but, while simple, this may not be compliant for those who work only part of the year. Following the case of The Harpur Trust v. Brazel  EWCA Civ 1402, companies may find their employees more willing to crunch some numbers and challenge their holiday calculation.
The statutory minimum holiday entitlement is currently 5.6 weeks per year under the Working Time Regulations 1998. A part-time worker is generally entitled to this amount reduced pro rata. The holiday calculation becomes more challenging if it is not known in advance how long a temporary or casual worker will be employed and/or they do not have regular hours or working patterns.
Many employers calculate the statutory holiday entitlement of a part-time employee by calculating 12.07% of hours worked. This method is not prescribed by the Working Time Regulations (WTR) but is useful to make calculating holidays easier for those who work reduced hours throughout the year. It is crucial to note this is for the calculation of holiday entitlement and not holiday pay. Employers can also use the government's holiday entitlement calculator to help assist in adjusting holiday entitlements of individuals who work fewer days, hours, casual or irregular hours, annualised hours, compressed hours or shifts.
However the Court of Appeal has now made it clear that this simple approach does not comply with the WTR for those who have no work for large parts of the year (such as school holidays).
Mrs Brazel was a "visiting music teacher" employed by Harpur Trust (the Trust). She was paid monthly at an agreed hourly rate, applied to the hours worked in the previous month, on a zero hours permanent contract. The length of school terms varied and she gave no lessons in school holidays.
She and the Trust agreed that she would receive three equal payments for her leave (April, August and December) as school holidays were longer than her 5.6 week entitlement. The Trust calculated her entitlement at the end of each term, and paid her one third of 12.07% of this figure.
Brazel brought claims in the employment tribunal of unlawful deductions from wages and less favourable treatment based on part-time status. At first instance Brazel's arguments were not successful – the tribunal preferred the 12.07% calculation applied by her employer. However, Brazel had more success when the matter was appealed to the Employment Appeal Tribunal (EAT). The EAT found that there is no requirement in the WTR to prorate holiday for part-time employees. It found the tribunal had overlooked the fact that part-time workers were not to be treated any less favourably than full-time workers, and that there was no equivalent requirement to protect full time workers.
At the Court of Appeal, the Trust made arguments about unjust results if the calculation applied was not 12.07%. However, the Court of Appeal (taking account of Article 15 of the Working Time Directive) upheld the judgment of the EAT. It concluded that there was no requirement to prorate leave entitlement for part-year workers. Member states were free to adopt more favourable arrangements for such workers. Further, the Court did not believe that omitting prorating was unfair to full-year workers, as Brazel was under a permanent contract. It also noted the attraction of having the same entitlement for all permanent employees.
The appeal was dismissed. The court held a simple understanding should be taken of what is required by the WTR, and there was no provision for prorating. Attempting to build a system of accrual into this would be the exercise of an entirely different scheme.
How would the position differ where there was a casual worker engaged under an umbrella contract?
In some instances, workers who only work part of the year may be engaged under an umbrella contract (i.e. they work under a series of individual contracts but there is an overarching contract which can operate to preserve their continuity of employment, even where there are gaps between the individual contracts). On a literal interpretation of the WTR, a casual worker in this situation will accrue holiday even whilst not actually working.
In the case of Heimann and another v. Kaiser GmbH (cases C-229/11 and C-230/11)  IRLR 48, the workers were working under contracts which might be considered to be akin to umbrella arrangements with lay-off periods between assignments. In that case the European Court of Justice (ECJ) held that the Working Time Directive does not preclude a national law under which a worker's accrual of paid annual leave is prorated. However, whilst the ECJ said that no such national law was precluded by the Directive, arguably it is not implied in the wording of the WTR.
If employers wish to avoid holiday accruing between assignments, they should be explicit about breaks in continuity between assignments and not enter into any umbrella arrangement.
What is the position in respect of an individual who is paid by assignment?
An individual working under a contract paid by assignment might also only work for a defined spell before a break, but they will typically be engaged on a series of discrete contracts. Calculating holiday for these individuals can be challenging as it is not so obvious how to apply a prorated calculation. The key is to either work out an average/approximate figure for the hours worked per assignment, or to treat an assignment as a shift and calculate the holiday entitlement in shifts. In some instances, this may be challenging to calculate without some rounding-up of the worker's statutory entitlement, or bespoke payment arrangements.
Amendments to the WTR
The WTR will be amended from 6 April 2020 by the Employment Rights (Employment Particulars and Paid Annual Leave) Regulations 2018. The regulations change the reference period used to calculate pay due where a worker has a variable remuneration. For example this will apply if remuneration depends on the amount of work done, or if the worker does not have normal working hours. Where a worker has been employed for at least 52 weeks, the reference period will be extended from 12 weeks to 52 weeks. Where they have been employed for fewer than 52 weeks, the reference period is the period that they have been employed.
However, none of the amendments have an impact on this issue at hand.
Whilst it may be arguable that to build in the requirement to prorate or accrue leave goes beyond an exercise in interpretation or construction of the WTR, it is nonetheless a method which has been used by employers for some time to manage the adjustment of annual leave entitlements to reflect part-time working arrangements.
Employers are recommended to take stock of the range of part-time working arrangements that they currently have in place. Where employers have a large body of workers who do not work part of the year, it may be worth calculating the differential. They may find that, with the reporting of this decision, such employees start to make unlawful deductions arguments. Where employees receive an enhancement on their statutory leave entitlement, it may be that they receive more than the statutory entitlement whichever calculation method is applied. However, employers should check the position and be ready to answer the question about their calculation methods (and employees' entitlements) where they are challenged.
Although the Court of Appeal was clear that its findings applied in respect of individuals on permanent contracts, there may be instances of employees with more casual working arrangements making similar challenges.