The Court set out how holiday pay should be calculated for permanent employees with irregular hours, i.e. ‘part-year’ workers such as those on zero hours or term time contracts.
Workers are entitled to 5.6 weeks of holiday per year. The Supreme Court stated that part-year workers holiday pay should be calculated with reference to their weekly average hours over a 52-week period, which is then multiplied by the 5.6 to determine the annual entitlement. This change can produce some unusual results e.g. a worker who has worked a five-day week only once in a 52-week period will receive 28 days holiday..
As a result of the decision a part -year worker will receive more holiday than a part-time worker, who works the same number of hours across the year.
This was referenced in the judgement with the Supreme Court noting that any slight favouring of such workers, was not of a magnitude that would require wholesale revision of the general rules. In response to a strong reaction from industry the government opened a consultation exercise to review the apparent disparity and determine how to formulate a better method of calculation.
The consultation exercise ended on 9 March 2023 but it will be many more months before we have the government’s response.
Until new legislation is introduced the decision of the Supreme Court is still binding, and it’s unusual for newly enacted legislation to have retroactive effect.
However, given the upheaval of amending internal policies and procedures for many employers a ‘wait and see’ approach outweighs the risks of litigation. In taking this approach however we would recommend that an organisation fully understands the potential extent of its liabilities, which can extend for a period of two years from the date of the most recent deduction. This evaluation should also include contractors who are potentially open to an employee status challenge.
Employers should consider using a fixed term contract for any new part-year workers to limit further exposure, as holiday pay for a fixed term contract is prorated to reflect the term of the contract rather than being calculated as a full year’s entitlement.