Home Business News Government proposals could see the holiday pay calculation return to the 12.07 per cent formula

Government proposals could see the holiday pay calculation return to the 12.07 per cent formula

by LLB Finance Reporter
24th Feb 23 9:22 am

Controversy surrounding holiday pay entitlement for part-year or irregular hours workers is generating more calls than any other matter to the HR Consultancy of UK Top 10 accountancy firm Azets.

Dozens of queries are being received every week from businesses across every sector concerning changes to the way holiday entitlement and pay should be calculated, which have rendered it an administrative nightmare for many businesses and a ‘fiasco’ according to consultancy head H-J Dobbie.

The difficulty stems from a Supreme Court decision last year which turned holiday entitlement calculations on their head and left businesses reeling from the consequences.

The outcome of the Harpur v Brazel case in July 2022 led to a sea change in the correct way to apply the regulations from the previous method of calculating holiday pay based on 12.07% of salary (‘the 12.07% method’), which was accepted as standard, to the so-called ‘calendar week method’.

Azets has offices in King William Street at London Bridge.

H-J said: “Clients right across the board are coming to us about this – those with a handful of employees who are all on zero hours contracts because they need the flexibility and those in the farming and agricultural businesses who have seasonal workers, because part-year working is crucial in this.

“It is also larger organisations, 50-plus employees, who have people with variable pay and variable hours. The farming and hospitality industries are very adversely affected by this, but it is also engineering, construction and many other sectors.

“From businesses’ perspective it really is an administrative nightmare – and that is putting it very mildly.

“It is every size and type of client. There is total confusion. Anyone going on to the Government website will struggle to understand the guidelines, as although they are comprehensive, they do not give the clarity that people want and need.

“We are in a crazy position whereby part-year workers, or workers with irregular hours are potentially getting more holiday than a full or part-time worker completing the same number of hours overall, and while this is not unlawful, it does not seem morally right.

“The current calendar week method is prohibitive to many SMEs because they can’t get their heads around it. They haven’t got the necessary records of hours or pay details and while our payroll bureaux will process the information given by clients in terms of holiday pay, they are now being asked to produce the calculations, which goes beyond the remit of their service.

“It is causing everybody a headache: those in payroll, HR and the person at the operational end.

“It is the most frequently asked question to my staff of the last six months by a long way.”

However, help may be at hand as the Department for Business, Energy and Industrial Strategy (BEIS) has launched a consultation seeking views on proposals to pro-rata holiday entitlement for part-year and irregular hours workers based on the annual hours they work.

Government proposals, if enacted, would see the holiday pay calculation return to the 12.07% formula, albeit with some changes.

It is believed that the launch of the consultation is an acknowledgement that the law has created unintended anomalies in need of rectification.

The consultation period of just eight weeks until March 9 suggests that the issue is being prioritised and amendments to the regulations may follow.

H-J added: “A lot of companies have not moved from the 12.07% method and that is why questions are now arising.

“Our advice to businesses still operating on the 12.07% method is to sit tight and see what happens with this review.

“If you change to the currently accepted method now, only to have to recalculate everything again if we revert to the 12.07% method, you are going to find yourself in a very sticky situation part way through your holiday year.

“If you have already changed to the calendar week method, then our advice is to stick with that until such time that we have got a solution.”

The Harpur v Brazel case involved a visiting music teacher employed by the Harpur Trust at Bedford Girls’ School who took the trust to an employment tribunal on a deduction from wages claim over her holiday pay and the case ended up at the Supreme Court.

The court ruled in her favour and held that the 12.07% method meant that if Ms Brazel worked fewer hours in any term her accrued holiday would amount to less than 5.6 weeks a year, which was a breach of the Working Time Regulations 1998 (WTR).

The court judged that every worker, including part-year workers, should receive at least 5.6 weeks’ paid holiday for each year they remain engaged on a permanent contract and this should be calculated on the calendar week method, not on a percentage of the hours worked.

H-J said this has led to ‘ridiculous’ situations, such as the example of one permanent employee at a school who worked three weeks a year (as an exam invigilator) but who was still entitled to 5.6 weeks’ holiday pay – around double her salary in holiday pay.

Responses to the consultation will be used to inform government thinking on the proposals it outlined. The government response to the consultation will be published in due course after the consultation closes.

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