Consultation on holiday entitlement for part-year and irregular hours workers

The Government has opened a consultation on holiday entitlement for part-year and irregular hours workers. It contains proposals to change the way in which statutory holiday entitlements and with it pay for part-year, including term-time only, and irregular hours workers are calculated under the relevant legislation. This follows the Supreme Court’s decision in Harper Trust v Brazel which concerned statutory holiday pay for a term-time only, irregular hours worker.

The LGA will be responding to the consultation on behalf of local authorities and to assist with that we would welcome authorities’ responses to the consultation questions which should be sent to eru@local.gov.uk by 28 February 2023. Should authorities want to respond directly to the consultation they can do so using the Government’s online response form, or they can email holidayentitlementconsultation@beis.gov.uk The deadline for responses to the Government is 9 March 2023 and we would be grateful if a copy of any such response could also be sent to us, again at eru@local.gov.uk

A full report of the issues  in the Brazel case is in Advisory Bulletin 705). In summary though the Supreme Court found that the common practice of paying an additional 12.07 per cent for each hour that an irregular hours term-time only worker was engaged in order to provide pay for the statutory annual leave was found not to satisfy those statutory entitlements. The 12.07 per cent derived from Acas guidance on holiday pay, which is based on 28/232 x 100 = 12.07 per cent (28 days being the number of statutory days’ leave for a full-time employee and 232 being the number of working days in a year, i.e. available working days  = 260, so 260 -28 days holiday = 232 ‘working days’).

Instead the Supreme Court held that every worker is entitled to 5.6 weeks’ leave under the Working Time Regulations 1998 (the WTR), without any element of pro-rating for those that do not work all year round or full time. The week’s pay provisions in the Employment Rights Act 1996 (the ERA) are then applied to calculate pay for the 5.6 weeks holiday. Under those provisions, where the employee’s pay varies, a week’s pay is based on an average of the 52 weeks’ pay earned immediately before the holiday was taken. Crucially though any week in which no pay was payable by the employer is excluded and the pay from the previous week where remuneration was earned is then taken into account instead (subject to going back to a maximum of 104 weeks). This means that a week’s pay is only based on the weeks of the year when the employee is working, and so for a term-time only worker who works five days a week during term-time, their ‘full-time’ working weekly pay. This differs to for example, a part-time worker working 3 days a week throughout the year, as their holiday pay will equate to 3 days x 5.6 weeks, so 16.8 days’ leave over the year.

Although the Brazel case concerned a term-time only worker the principles in it also mean that in some cases a 12.07 per cent approach will not be enough to satisfy the holiday entitlements for casual workers with irregular working patterns, especially if they have a number of weeks during the year in which they do not work or are not on leave. Therefore, the result of the decision is that the 52-week ERA calculation must be used so the calculation of holiday entitlements for casual and part-year workers is now more administratively burdensome than simply applying a 12.07 per cent uplift.

The consultation sets out a proposal to change that position and in effect revert to the situation where the 12.07 per cent approach applies. From a headline perspective using a 12.07 per cent approach would not conflict with the Green Book entitlement for term-time only workers as their contractual leave entitlement will in nearly all cases be above that 12.07 per cent, and under the WTR, the worker is entitled to the better of their contractual or statutory entitlement to leave.

Further details of the consultation and the questions are set out below with our comments. In doing so we start at question 14, the first 13 questions being of an administrative nature only, and we have not included the questions thereafter directed at workers rather than employers.

Regulation 16 of the WTR provides that the 5.6 weeks leave entitlement shall be paid at the week’s pay rate calculated in accordance with the week’s pay provisions at sections 221 to 224 of the ERA. For the purposes of part-year and irregular hours workers section 224 is the relevant provision.

Until such time as the WTR may be amended the law remains as set out in the current legislation as interpreted in the Brazel case. If employers do introduce changes to their current practices on holiday pay to ensure compliance with the current law, they should ensure that this is not a contractual change. The change should be highlighted as something that can be kept under review and which is subject to any changes in the law.

This part of the consultation seeks information on employers’ current practices.

LGA comments: we encourage authorities to respond direct to this question as practices will differ, especially in relation to irregular hours workers. We will though indicate in our response that although there are varying practices, ultimately they are aimed at ensuring such workers receive their statutory holiday entitlements. Also often the calculation method will be based on contractual holiday entitlements which are in excess of the minimum statutory requirements, thereby further ensuring workers receive their statutory entitlements.

For term-time only workers we will respond to say that many local authorities will calculate their holiday entitlement for term-time only workers using the guidance set out at Part 4.12 of the Green Book. In summary, that provides a mechanism for calculating a term-time only worker’s contractual holiday entitlement on a pro-rata basis compared to a full-year worker’s entitlement. Provided then the pro-rata entitlement is equal to or more than the statutory 5.6 weeks, which will very often be the case, that pro-rata contractual entitlement will apply. Should though the pro-rata contractual entitlement be less than 5.6 weeks then the guidance indicates that to comply with the Working Time Regulations following the judgment in the Brazel case holiday entitlement should be increased to that minimum.

The proposal: introducing a 52-week holiday entitlement reference period

The proposal in the consultation is aimed at ensuring part-year workers and workers with irregular hours receive the holiday entitlement and pay which reflects the hours that they have worked. This will therefore allow employers to pro-rate statutory holiday entitlement for part-year workers.

The consultation states that the simplest way of doing this would be to introduce a 52-week holiday entitlement reference period for part-year and irregular hours workers based on the proportion of time spent working over the previous 52-week period, including weeks not worked. In order to enable this employers would be required to keep records of the time spent working by such workers, similar to the data already needed to calculate holiday pay. The consultation notes though that to calculate holiday pay for such workers the data required is likely to stretch back to more than 52 weeks, because the 52-week reference period for calculating holiday pay discounts weeks in which no pay was payable, and the consultation does not set out a proposal to change that.

The proposal is that statutory holiday entitlement for part-year and irregular hours workers should be calculated as follows:

• Calculate the total hours a worker has worked in all the previous 52 weeks
• Multiply the total hours by 12.07 per cent to give the worker’s total annual statutory holiday entitlement in hours

There are some examples calculations at page 17 of the consultation document which people may find useful to read to see how the calculations work in practice.

Do you:

• Strongly agree
• Agree
• Neither disagree nor disagree
• Disagree
• Strongly disagree
• Don’t know

Please explain your answer.

LGA comments: We encourage authorities to respond direct to this as record keeping practices will differ. However we anticipate that in many cases authorities will have a record of time worked over the past year for irregular hours and part-year workers. Further for many term-time only workers it will simply be a case of using the hours set out in the worker’s terms and conditions. Unless authorities tell us otherwise we will make those points in our response.

Treatment of weeks without work in the holiday entitlement reference period

As set out above the proposal on the 52-week holiday entitlement reference period is to include all the weeks in the past year, even those weeks where no work took place. This is unlike the holiday pay reference period where weeks not worked are excluded from the 52-day period.

The consultation indicates that including all the weeks in the holiday reference period would create a more equitable approach to calculating holiday entitlement as workers will receive an entitlement directly proportionate to the hours they work.

Do you:

• Strongly agree
• Agree
• Neither disagree nor disagree
• Disagree
• Strongly disagree
• Don’t know

Please explain your answer.

LGA comments: On the face of it including weeks without work in the holiday entitlement reference period would appear to be a fair approach, particularly for term-time only workers, as it would mean their statutory entitlement would be pro-rata to a full-year worker. However, we highlight in our response to question 18 below the issues that arise on using the past 52 weeks to assess holiday entitlement where the hours worked decrease or increase in comparison to the previous leave year. We would welcome authorities’ view on this.

Using a rolling or fixed holiday entitlement reference period

The next part of the consultation considers whether there should be a rolling or fixed 52-week holiday entitlement reference period.

A rolling period is the same as applies for holiday pay entitlement and it would mean that each time a new week is completed, the oldest of the 52 weeks would fall out of and be replaced by the new week. This would cause variations in holiday entitlement from week to week.

A fixed reference period would mean that at the beginning of every new leave year, the worker’s holiday would be calculated based on the previous 52 weeks, and that entitlement would then apply throughout the new leave year without any recalculation from week to week.

The consultation notes that using a rolling period potentially makes understanding and planning when to take holiday complicated, as the entitlement would vary from week to week. Therefore the Government’s preferred option is to use the fixed reference period, as that would provide clarity on a worker’s holiday entitlement at the start of their leave year. It would also be the simplest approach.

Do you:

• Strongly agree
• Agree
• Neither disagree nor disagree
• Disagree
• Strongly disagree
• Don’t know

Please explain your answer.

LGA comments: While using a fixed reference period provides certainty and administrative convenience, which many authorities will support, it does contain a flaw where hours vary from year to year. For example, if a worker’s hours of work increased substantially in a leave year, their leave entitlement for the whole of that year would still remain based on the fewer hours they worked in the previous year. Similarly, a decrease in hours from one leave year to the next would mean the worker’s leave entitlement remained based on their higher working hours, despite working less in the relevant year. We recognise that over time such anomalies may balance out, but there remains the risk that workers could get too little or too much leave when looked at against the hours worked in their current leave year.

That being said, the risks would be less for a typical term-time only worker, as unlike ‘zero-hours’ type workers their hours tend to remain more or less the same from one leave year to the next. One option therefore might be to keep a fixed reference period for term-time only and other part year workers with a regular working pattern from one leave year to the next, but for irregular hours workers have a rolling reference period, or perhaps as a middle ground approach, a three-month rolling reference period where the leave entitlement is re-calculated every three months, rather than every week. The other option would be to have a monthly calculation, similar to what is proposed for those in their first year of employment and agency workers.

A final option could be to simply change the way that pay is calculated for part-year and irregular hours workers. Under that system all workers would get 5.6 weeks holiday, but in calculating holiday pay that would be based on the previous 52 weeks, including all the weeks in the past year, even those weeks where no work took place. That would in effect build in an element of pro-rating for pay for part-year workers.

We would welcome local authorities’ comments in response to this question, as well as any alternative proposals they may have.

The 52 week reference period assumes that a worker has been employed for at least 52 weeks. Accordingly there would need to be a system for workers in the first year of their employment. Under regulation 15A of the WTR workers in the first year of their employment receive 1/12^th of their annual holiday entitlement at the start of each month.

The consultation document states that a similar approach could be used for workers with irregular hours, save that holiday entitlement would be calculated at the end of each month, based on the actual hours worked in the past month, as shown below:

• Hours worked in previous month x 12.07 per cent = monthly statutory entitlement

Employers could use their discretion to allow a worker to take more annual leave than they had accrued in advance.

Do you:

• Strongly agree
• Agree
• Neither disagree nor disagree
• Disagree
• Strongly disagree
• Don’t know

Please explain your answer.

LGA comments: the monthly accrual process would be on the face of it the most sensible way of calculating holiday entitlement in the first year of employment. We would welcome local authorities’ comments though.

This part of the consultation applies only to irregular hours workers as when those workers take a particular day off there must be a way to calculate how much holiday they take on a particular day. For shift and part-year workers that is a simpler matter as that will in most cases be assessed with reference to the hours they would normally work on the day in question.

For irregular hours workers the Government’s preferred option is to use the 52-week holiday entitlement reference period to calculate a flat average working day, that being the simplest option. When a worker takes a day off they would take off the number of hours based on that average working day. The consultation acknowledges though that the option carries the risk of workers taking particular days off when they would normally expect to work less than their average working hours, as that would maximise their holiday pay in contrast to the actual anticipated hours off work.

The consultation refers to a second potential method, that being to calculate the average working hours for certain days. For example you work out the average hours worked on a Monday and when the worker takes a Monday off those average hours will be applied to that holiday. However, such an approach would be administratively burdensome so it is not the Government’s preferred approach.

Do you:

• Strongly agree
• Agree
• Neither disagree nor disagree
• Disagree
• Strongly disagree
• Don’t know

Please explain your answer.

LGA comments: We would welcome local authorities’ comments on the proposal to use a flat average working day. Some might think that the alternative proposal of calculating the average working hours for certain days would be preferable, it being more likely to match the hours the worker would have been expected to work that day. That is despite the fact it would be more administratively burdensome.

A further option also could be that where it is known what hours the worker would be working on the proposed day of leave, it will be those hours that apply and which would be deducted from their entitlement, and it would only be where those hours are not known that a flat rate or similar would be used. We would welcome thoughts on this option.

Agency workers may have a contract for services with an employment business/agency that in turn supplies them to work for a client. Alternatively the agency worker may be employed by an umbrella company, with a view to them being supplied to a client.

The consultation recognises that holiday entitlement can be difficult to calculate for agency workers, such workers potentially working on a number of different assignments for different clients, and in some cases through different agencies, within a relatively short period. That means that a single 52-week holiday entitlement reference period is inappropriate. Instead the proposal is that statutory holiday entitlement should be calculated as 12.07% of the hours worked at the end of each month of an assignment, or at the end of the assignment if shorter than a month. However, where an agency worker has a contract of employment with an umbrella company which is longer than a year, their statutory holiday entitlement would be calculated using the 52-week reference period referred to earlier in this consultation.

Do you:

• Strongly agree
• Agree
• Neither disagree nor disagree
• Disagree
• Strongly disagree
• Don’t know

Please explain your answer.

LGA comments: This question is most relevant for agencies and umbrella companies, but if local authorities have any comments on the proposal please let us know. On the face of it though the proposal seems the most sensible way of calculating agency workers’ statutory holiday entitlements and we anticipate that prior to the Brazel judgment would have been the most common way of providing statutory holiday entitlements. It is worth noting though that under the Agency Workers Regulations 2010 (the AWR) agency workers are entitled to the same holiday benefits as if they were employed directly by the hirer after a 12-week qualifying period. This will mean those agency workers’ holiday entitlements may be more than those under the WTR and so a different percentage or calculation would be used. Therefore it would be important to ensure that any changes to the WTR do not conflict with the requirements under the AWR.

LGA comments: Please let us know if you have any further comments.