Holiday pay pains – an end in sight for UK employers?

Holiday pay calculations continue to cause headaches for employers.

In a further twist in 2022, the Supreme Court held, in Harpur Trust v Brazel, that the holiday entitlement of a worker on a permanent contract who works for fewer than 52 weeks in a year should not be subject to any pro rata reduction to make it proportionate to the entitlement of a full-time worker.  

The decision will have a particular impact in the education sector where part year working is common, as well as on some casual and agency workers. The ruling is set to increase holiday pay bills for employers who had previously understood that a pro rata reduction was lawful. It also creates a perception of unfairness, by resulting in a higher rate of holiday pay for some workers and not others.

In response to this decision the Government has now launched a consultation process, proposing to introduce a holiday entitlement reference period for part-year and irregular hours workers which makes holiday entitlement and pay directly proportional to time spent working. This would be achieved by an amendment to the Working Time Regulations to change the basis of the holiday pay calculation and only counting weeks in which the individual actually works in working out average pay for holiday purposes. 

The consultation, which ends on 9 March 2023, seeks views on whether this calculation method is a fairer and easier way to calculate the holiday entitlement and pay of part year and irregular hours workers. 

Employers who wish to respond should note the deadline. If you need any guidance or have any questions on the issues raised, please do reach out to a member of our team who would be happy to help.