The Government’s consultation on holiday pay – implementing Harpur Trust v Brazel

In our blog on the Harpur Trust v Brazel case we highlighted the Supreme Court’s decision on the calculation of holiday pay for those without fixed hours of work.

To recap, the Court’s finding in Harpur Trust was that the correct interpretation of the Working Time Regulations 1998 is that holiday pay for part-year workers should not be pro-rated so that it is proportionate to the amount of work that they actually perform each year (calculated as being 12.07% of wages), but rather should be calculated by looking at the average pay received for weeks that were actually worked. In effect, this means that part-year workers would be entitled to a higher sum for paid holiday entitlement than part-time workers, even where they work the same number of hours across the year.

As a result of this decision, the Government estimates that between 320,000 and 500,000 permanent term-time and zero-hours contract workers will receive more holiday entitlement. Approximately 37% of these are workers in the education sector, such as teaching assistants who are employed on part-year contracts. The Government analysis also estimates that there are between 80,000 and 200,000 agency workers who may receive higher amounts as holiday pay as a result of this judgment. The decision has caused a disparity which will have a greater impact on some sectors more than others.

To address this disparity, the Department for Business, Energy and Industrial Strategy (BEIS) has begun a consultation process seeking to collect views on the introduction of legislation which would seek to address this disparity. This consultation opened on 12 January 2023 and will close on 9 March 2023.

The proposal at the heart of the consultation, with the aim of ensuring workers receive entitlement and pay reflecting the hours that they have worked, is the introduction of a 52-week holiday entitlement reference period. The introduction of this reference period, would “resolve the anomaly” by allowing employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion to the total annual hours they work. Introduction of a 52-week holiday entitlement reference period would ultimately bring the holiday pay and entitlement of part-time workers in line with the entitlements received by part time workers who work the same number of hours across the year. It would also address a key question for many employers – how should holiday entitlement actually be calculated for workers of irregular hours?

This proposal might sound familiar to some. This may be because holiday pay for workers with irregular hours is already calculated using a 52-week reference period, although weeks without work are excluded from the reference period in order to calculate the average pay per working week. The Government proposes that the length of the holiday entitlement reference period should mirror the length of the current holiday pay reference period for consistency. If this proposal is implemented, it would mean that employers would be required to hold records of time spent working by such workers, similar to the data already required to calculate holiday pay and to comply with the National Minimum Wage Regulations 2015.

Naturally, once the consultation has drawn to a close and the findings are known, this proposal may develop and change. As such, we will continue to monitor developments and will provide an update once the findings of the consultation are available.

In the meantime, should you wish to discuss how to prepare for the current proposal or holiday pay more generally, please contact Linky Trott or any member of the Employment team.

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