The Government has launched a consultation in response to the Supreme Court's landmark judgment in Harpur Trust v Brazel [2022] UKSC 21, a summary of which can be found here.
As a reminder, this decision confirmed that part-year workers (such as term-time only employees) are entitled to receive the full statutory entitlement of 5.6 weeks' holiday. As a result of this decision, part-year workers are entitled to a larger paid annual holiday entitlement than part-time workers who work the same number of hours across the year.
With this new consultation, the Government intends to mitigate the implications of the Supreme Court's decision in Harpur Trust. The Government proposes to amend the Working Time Regulations 1998 (WTR) so that the statutory holiday entitlement for part-year workers reflects the number of hours they have actually worked.
In summary, the consultation proposes the following amendments:
- Employers would continue to use a 52-week reference period to establish holiday pay for workers with irregular hours, discounting any weeks when no remuneration was received. However, the reference period for calculating holiday entitlement would change to a fixed reference period, as opposed to the current rolling reference period. This means that the reference period would include weeks in which the worker does not perform any work.
- The 52-week reference period would be applied at the beginning of a new leave year to calculate the entitlement for that year.
- In the first 12 months of employment, to reflect the lack of 52-week reference period, the worker's holiday entitlement would be calculated at the end of each month based on the hours worked in that month.
- Similarly, agency workers' holiday entitlement would be calculated at the end of each month based on the hours worked in that month. Where an assignment is shorter than a month, it could be calculated at the end of the assignment. The agency worker could choose whether to take this annual leave during or at the end of an assignment; or receive a payment in lieu when the assignment completes.
- Employers could calculate the statutory holiday entitlement for part-year workers by multiplying the total hours worked in the 52-week reference period, or in the relevant month if applicable, by 12.07%. This represents the entitlement to statutory holiday (5.6 weeks) as a percentage of the total number of working weeks in a year (46.4 weeks). This was the method expressly rejected by the Supreme Court in Harpur Trust, as it was not compliant with the existing provisions of the WTR.
- Employers would calculate a 'flat average working day' for each worker with irregular hours, based on the 52-week reference period. For each day of annual leave taken, the employer can then deduct this number of hours from the worker's annual leave entitlement.
The consultation is open until 9 March 2023 and if the amendments to the WTR go ahead, it will be a welcome development for those who have been grappling with the implications of the Supreme Court's decision in Harpur Trust v Brazel. It is hoped that any legislative reforms that follow will provide much needed clarification to employers.
It is interesting to note that the Government is proposing to amend the Working Time Regulations 1998. The fate of these Regulations is uncertain in light of the Retained EU Law (Revocation and Reform) Bill, which, subject to Parliamentary approval, could have the effect of automatically repealing the WTR, along with many other European-derived legislation, as soon as 31 December 2023. More information on the implications of this Bill can be accessed here.
In the short-term, employers should continue to establish whether they are paying part-year workers for the correct amount of holiday, in accordance with the decision in Harpur Trust v Brazel, which remains binding authority. It may still be advisable to address any instances of underpayment and to take legal advice on specific situations, since it is unlikely that the legislative reform proposed in the consultation will be implemented quickly. In any event, it would be unusual for the amendments to the WTR to apply retrospectively. Accordingly, despite the Government's intervention, part-year workers may still have claims for underpayment of holiday pay for the period between the Supreme Court decision and the implementation of revised legislation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.