Employment Law: Calculation of Holiday Pay | December 2022

Employment Law: Calculation of Holiday Pay | December 2022

Several months ago, we looked at the case of Harpur Trust v Brazel and the implications this has had for organisations when it comes to calculating holiday entitlement and pay. In this month's update, we take a closer look and provide more clarity on these key issues.

When looking at the calculation of holiday entitlement and remuneration, it is necessary to consider the Working Time Regulations 1998 Part II which state:

Payment in respect of periods of leave

16.(1) A worker is entitled to be paid in respect of any period of annual leave to which he is entitled under regulation 13, at the rate of a week’s pay in respect of each week of leave.

Section 16. 2 then makes reference to the Employment Rights Act 1996

16. (2) Sections 221 to 224 of the 1996 Act shall apply for the purpose of determining the amount of a week’s pay for the purposes of this regulation.

In determining who this applies to, the regulation/s refers to ‘worker’ which also means employees, in this context, however it does not apply to bona fide self-employed sub-contractors.

Almost all workers therefore are legally entitled to 5.6 weeks’ paid holiday a year (known as statutory leave entitlement or annual leave) and this also includes:

  • Agency workers
  • Workers with irregular hours
  • Workers on zero-hours contracts

To determine how then to calculate a weeks pay, as referred to in the above Working Time Regulations 1998, it is necessary to consider the Employment Rights Act 1996 and, in doing so, it is important to understand the terminology used as the regulations which are expressed in hours/weeks or proportions of weeks.

So for a part time worker on a fixed 3 days per week that would be their ‘normal working week’ and therefore entitled to 5.6 weeks x 3 days = 16.8 days per year.

Sections 221 to 224 of the Employment Rights Act 1996 then go on to deal with the employees’ remuneration when calculating holidays around the ‘normal working week’ and applies this to normal working hours, whether by the hour or week or other period as follows:

  • Section 221 deals with normal working hours that does not vary with exceptions should it vary
  • Section 222 deals with working hours which differ from week to week or over a longer period
  • Section 224 applies to employment with no normal working hours
  • Section 223 is the supplementary that details the counting back for 12 weeks to take into consideration an average of the hours/days worked for remuneration purposes. However, the 12 weeks calculation in 223 has since been updated and counting back to determine holiday pay remuneration it is now based on the average pay over the previous 52 weeks. Furthermore, if for any of the 52 weeks the worker/employee received no pay at all then the employer should use an earlier week in its place for calculating holiday up to a maximum of 104 weeks.

NB: This continues to be a complex issue for many employers and each case would need to be considered given its unique circumstances therefore the above information is for general guidance only and is not legal advice. It should not be regarded or relied upon as a complete or authoritative statement of the law. However, if you have any HR issues on this or any other HR matters and would like to talk them through with our team, please contact us.

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