For many years, employers have used the 12.07% method for calculating holiday allowance for part-year or ad-hoc workers. This calculation was set out in ACAS Guidance (now withdrawn), where they said that a holiday entitlement of 5.6 weeks is equivalent to 12.07% of hours worked over a year.
In 2019, an Employment Appeals Tribunal, in response to Harpur Trust v Brazel, held that the 12.07% method is legally incorrect and holiday should not be calculated on a pro-rata basis in this way. The Court of Appeal stated that all employees are entitled to 5.6 weeks holiday a year which should be calculated using an average week's pay in accordance with the Working Time Directive (WTD) and Employment rights Act 1996, otherwise referred to as the Calendar Week Method.
The Harpur Trust appealed this ruling, and it was referred to the Supreme Court where it was heard on 9th November 2021. The judgement of this appeal was published on 20th July 2022, when the Supreme Court dismissed the appeal and agreed with the ruling that the 12.07% method to calculate holiday is unlawful.
What Does This Mean?
Within Workforce Management, there are four different Employment Types that can be assigned to employees:
- Full Time
Full and Part-Time employees' holiday is based on the number set for their Job Title.
Flexible is typically used for hourly employees with variable hours and holiday is calculated using the Calendar Week Method
Casual for hourly employees for those working extremely irregular working patterns and holiday is calculated using the 12.07% method
The Supreme Court Ruling means that the Casual Employment Type is now Unlawful and holidays should be calculated in accordance with the Employment Rights Act 1996 - essentially, the Calendar Week Method.
The decision will have an impact on customers using the Casual Employment Type, who will now need to reconsider their holiday calculations and possibly make changes to policies and contracts. It may also result in an increased ongoing cost for holiday pay for employees who work on an ad hoc basis.
What Should Customers Do?
Identifying any Casual employees and discussing the impact of the decision internally would be the first step.
Further information can be found here - WFM UK: Moving Employees from Casual to Flexible Employment Status
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