Holiday pay: latest developments

Holidays are supposed to be relaxing – but, for employers, keeping up with the law on paid holiday rights is anything but that.  One of the most complicated aspects is calculating leave entitlements and holiday pay for workers with irregular hours. 

Casual staff and those employed under zero hours contracts are entitled to 5.6 weeks' paid holiday each year, as with any other worker.  But how many days/hours are in a week's holiday when working hours are unpredictable?  Most employers use a convenient shortcut recommended in ACAS guidance: the worker's holiday entitlement will be equivalent to 12.07% of the hours they work in the year (and they receive their usual hourly rate for the holiday).  But a recent Court of Appeal case has now cast doubt on this approach. 

The Claimant was a teacher who worked only during school terms but was employed under a permanent contract. Her holiday pay was calculated as 12.07% of the hours worked in each term and paid as a lump sum at the end of the term.  Effectively this meant that she was treated as not accruing annual leave during school holidays.  The Court of Appeal ruled that the school's calculation was unlawful and rejected the school's argument that it was unfair for an employee who worked only part of the year to accrue the same amount of annual leave as someone who worked a full year.  The Court ruled that because Claimant's employment contract continued during school holidays, she was entitled to accrue annual leave during those periods.

The impact of the ruling isn't limited to schools - other staff on permanent contracts who work for part of the year and who receive holiday pay calculated at 12.07% of their actual working hours could potentially bring claims.  Unfortunately, the case leaves lots of practical questions unanswered.  Employers will need to assess their potential exposure, but may wish to wait for further clarification from the courts or updated ACAS guidance before changing their practices.