How to Calculate Holidays for Irregular Hours in the UK?

7 Jun

Until last year most companies with staff working irregular hours would calculate the holiday entitlement for these staff using the 12.07% accrual basis. Following the case of Harpur Trust vs Brazel, the UK Supreme Court determined that the 12.07% holiday pay calculation method is incorrect for workers with irregular working patterns and pay.

What Industries and Which Employees Are Affected?

In industries such as retail, hospitality, and events, security organisations often employ seasonal workers to account for the increased demand during peak seasons, such as:

School holidays
Bank holidays
Easter
Events and festivals
Large sporting events such as The Commonwealth Games
Christmas

This represents the people who do not work all year round and those who will have breaks in their working patterns.

If those individuals are engaged under permanent contracts, they are entitled to 5.6 weeks of holiday per year, paid at the rate of their average weekly wages, even if there are significant parts of the year when they do not do any work.

What should these Organisations do?

The first question is, do you employ these people directly or through a third party?

Direct Employment

Organisations that engage part-year or seasonal workers under permanent contracts should:

Re-think whether permanent contracts are appropriate where work is only undertaken during part of the year.
Conduct an internal audit to understand the extent to which holiday pay may have been underpaid and whether the shortfall should be paid out.
Consider what calculation method should be used going forward.

Employment Through a Third Party

If you employ people via a recruitment company or staffing company, it is likely that these recruitment companies will be amending the contracts they use to engage/employ staff and may also be amending the holiday accrual rate from 12.07% to a higher figure. This change in the calculation may well mean an increase in the overall fee payable to account for these changes and, thus, the overall cost of the staffing bill.

The old 12.07% Calculation

Companies would standardly use 12.07% to calculate accrued holiday for part-time staff, zero-hours staff or staff on flexible irregular contracts.

This 12.07% accrual calculation was based on a standard working year being 46.4 weeks. This is calculated as 52 weeks less the statutory 5.6 weeks annual leave entitlement. Thus 5.6 weeks as a percentage of 46.4 weeks is 12.07%. This was also the calculation method previously recommended by the ACAS on its website.

The New Legal Calculation Basis

Regulation 16 of the WTR provides that a worker should be paid by reference to a “week’s pay” as defined in sections 221 to 224 of the Employment Rights Act 1996 (the “ERA 1996”).

Section 221 of the ERA 1996 provides that for workers with no regular working hours, a week’s pay should be calculated by reference to average weekly remuneration in the period of the previous 12 weeks (with effect from April 2020, this has been amended to 52 weeks), but discounting any weeks in which they received no remuneration (the “Calendar Week Method”).

Unfortunately, this can result in anomalies. For example, a worker who is employed for a whole year but only works one week per year and is paid £100 for that week would be entitled to £560 holiday pay because the 51 weeks in which they receive no remuneration are discounted!

How to Calculate?

How should we calculate holiday entitlements and holiday pay for part-year workers, casual workers and others with irregular hours post Harpur Trust vs Brazel?

Calendar Week Method

The only reliable and accurate answer now is to use the Calendar Week Method (and not the Percentage Method). If the worker takes a week’s holiday, they should be paid a week’s pay calculated according to the statutory formula. You can use the accrual method as an approximation, but on an actual holiday request or if a member of staff is leaving, you must use the Calendar Week Method to work out the balancing figure (difference between the number from the accrual 12.07% and Calendar Week Method Calculation). Please bear in mind that the statutory formula does not provide for a calculation of fractions of weeks.

Some Examples of Holiday Pay Calculations

Workers who are in employment for a full leave year are entitled to 5.6 weeks of statutory leave subject to a cap of 28 days. In practice, this cap only affects a worker if they work for more than 5 days a week.

Principle

The statutory holiday entitlement for a worker who works a full leave year is the lower of:

a) 28 days; or

b) 5.6 x days worked per week

Scenario 1

Peter works 3 days per week, with each day being 8 hours long. His statutory leave entitlement is the lower of 28 days or 5.6 x 3 days per week, which is 16.8 days.

Therefore, Peter’s statutory leave entitlement is 16.8 days.

Scenario 2

Christina works 5.5 days per week. Her statutory leave entitlement is the lower of 28 days or 5.5 x 6 days per week, which is 33.0 days.

Thus, Christina’s statutory leave entitlement is 28.0 days.

Variable hours per shift

If you have employees who work a fixed number of hours each week but not the same number of or different hours each day, then unfortunately, the legislation does not state exactly how to incorporate the 28-day statutory cap.

Statutory Leave entitlement needs to be calculated in days multiplied by the average length of a working day.

In this case, you need to calculate what the Average Working Day is.

The Average Working Day is defined as the hours worked per week ÷ days worked per week.

Statutory Leave = annual entitlement in days x average working day in hours.

Entitlement in days is the lower of:

a) 28 days

b) 5.6 x days worked per week

Scenario 3

Sid works a total of 24 hours over 4 days a week, working 5 hours on Monday and Thursday and 7 hours on Tuesday and Friday.

His statutory entitlement in days is the lower of 28 days or 5.6 x 4 days (22.4 days). Therefore, Sid’s full statutory annual leave is 22.4 days.

Sid’s average working day is 24 hours divided by 4 days or 6.0 hours per day.

Therefore, his statutory holiday entitlement for a full leave year is 22.4 days x 6.0 hours = 134.4 hours a year.

Depending on which days he takes off as leave, it will either be 5 hours or 7 hours from his total leave entitlement.

Meelik Samel