Hot off the press!
The UK Supreme Court has clarified the law relating to holiday pay for casual workers who work for varying hours during only certain weeks of the year but have a continuing contract throughout that year.
Historically, many employers have chosen to pay these individuals by taking the total hours worked across a particular period (e.g. a month or a school term) and then multiplying that by 12.07% and then paying that many hours at the usual hourly rate. Indeed, this was the approach previously advised by ACAS in its guidance booklet Holidays and Holiday Pay although that guidance was withdrawn in 2020. The Supreme Court has now confirmed that the 12.07% method cannot be used.
For casual workers, the approved approach to calculating holiday pay is now an administrative exercise involving calculating the weekly average pay and then multiplying that by the amount of holiday taken in weeks.
The following steps should be adopted:
1) For the 52-week period immediately before the period taken (or designated) as leave, the total pay earned by the worker should be calculated. This is then divided by 52 to give the average weekly pay. When calculating the average weekly pay, any weeks in which the employee earned no pay must be disregarded and the 52-week period should be extended so that there are 52 weeks of earnings used (subject to a maximum for the reference period of 104 weeks).
2) This weekly average should then be used to pay the worker for each week of their 5.6 weeks of leave taken (or designated as taken). For example, if the worker is deemed to take a period of 1.2 weeks as leave then they would receive 1.2 x the relevant average weekly pay for the reference period immediately before the leave is taken.
In the case of Mrs Brazel, she took her 5.6 weeks of leave in three blocks of 1.87 weeks with a period of holiday taken in each of the winter, spring and summer school holidays. Mrs Brazel was entitled to be paid 1.87 x her average weekly pay for each of those periods of holiday. This was significantly more money than would have been payable if the 12.07% approach was adopted.
The tricky part for employers will be the calculation of the average weekly pay as this will involve not only considering the pay received but also remembering to ignore weeks where no pay was earned. For casual workers who earn something every week this is not so much an issue but for casuals who frequently do no work at all for an entire week the calculation could be more complicated.
The Supreme Court accepted that the application of the average earnings approach could mean that some workers received a windfall and were paid proportionately better than their full-time or regular hours counterparts but as that approach was not unlawful is not a reason to adopt a different approach to calculating holiday pay for casual workers.