Although the nine-to-five, five-day working week still remains the dominant model of work, many businesses directly engage staff on contracts that differ from this traditional model, and the way to calculate their holiday is changing.
‘Zero hour’ contracts may be used where the volume of work is unpredictable and consequently hours of work are irregular, or staff (such as hourly-paid term-time staff who work in schools and educational institutions, or seasonal workers) may be engaged on permanent contracts whereby they are not required to work each week of the year.
It is these types of workers that have been addressed by new legislation that has amended the Working Time Regulations that sets out a new statutory holiday calculation method for ‘irregular hours’ and ‘part year’ workers.
The reason for this change in the holiday calculation method is to address the anomaly (as a result of a previous ruling by the Supreme Court) that workers who are under contract all year round, but who don’t necessarily work each week, are still entitled to at least the statutory 5.6 weeks’ holiday per year. This is the same statutory minimum holiday entitlement as workers who work every week per working year.
"If you are an employer that engages workers on these types of contracts, it is important to note these legal changes to holiday accrual and ensure that contracts are updated where necessary"
Legislative changes
Now, workers on these types of contracts who are employed in Great Britain (and who meet the precise legal definition of being a ‘part year’ or ‘irregular hours’ worker), for holiday leave years that commence on or after 1 April 2024, will generally accrue statutory holiday in each pay period (for example each week, if a worker is paid weekly) in accordance with time actually worked at a set percentage of 12.07% of each hour worked. Previously, legislation did not address how the holiday entitlement (which is expressed in weeks) translates to hours or days for those for whom there is no ‘normal week’, as their hours of work may vary from week to week.
Before, employers who used this common percentage accrual method based on time spent working only did so at their own risk. This method (although a practical one) was not set out in any legislation. In 2018, the percentage accrual method for calculating holiday pay entitlement for ‘part year’ workers was ruled unlawful by the Employment Appeal Tribunal in relation to a visiting music teacher who worked in a school and worked irregular hours under a zero hours contract during term time only. She was entitled to the shortfall in historic holiday pay that arose as a result of using this unlawful holiday calculation method, as it was ruled that she was still entitled to accrue holiday outside term time when she was under contract but not actually working. This decision was upheld on appeal in 2022 by the Supreme Court. It was a difficult and impractical ruling because, if this method was unlawful, then what was the alternative method for working out holiday entitlement in hours or days (rather than weeks) for these types of workers, when the legislation was silent on this point? With the change in legislation, we now have certainty (although not necessarily simplicity) on this point.
Employers need to be aware
If you are an employer that engages workers on these types of contracts, it is important to note these legal changes to holiday accrual and ensure that contracts are updated where necessary, so that you do not inadvertently underpay (or indeed, unnecessarily overpay) holiday pay for your workers. Given the amount of attention from the employment tribunals the issue of holiday pay has received, this is an area that employers should be alert to.
The change in legislation also reflects the current legal position (as a result of court decisions) that workers who regularly receive certain additional pay elements, such as commission, regular bonuses or overtime pay, should have this reflected in some of their holiday pay (in relation to the four week’s holiday that originally derived from the Working Time Directive). This is a result of various European rulings that have been applied by the UK courts and have now, for the first time, been incorporated into UK legislation. Employers who have continued to pay basic pay only as holiday pay may have found themselves facing litigation. The most high-profile example of this was a group claim brought by 3,700 police officers in Northern Ireland who did not have overtime pay reflected in their holiday pay, which has left the Police Service of Northern Ireland owing those claimants a shortfall in historic holiday pay of up to £40 million.
It is also important to be aware that, although the aim of this legislation is to place on a legal footing a simple accrual system for these types of workers, the rules around the calculation of holiday entitlement and holiday pay for atypical workers and for those that work fixed hours but regularly receive certain additional pay elements, is somewhat complex and some areas of uncertainty remain.
Obtaining employment advice and/or accessing Government and ACAS online guidance will help employers stay up to date with these changes and help avoid inadvertent errors.
