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Government Launches Holiday Pay Consultation

Following on from the Harper v Brazel case, which confirmed that holiday pay for casual but permanent workers must now be calculated at 5.6 weeks of each week of pay, making the much used 12.07% formula for pro-rata holiday pay redundant, the Government has launched a consultation to ensure that holiday pay and entitlement received by workers is proportionate to the time they spend working.

The judgment held that the correct interpretation of the Working Time Regulations 1998 is that holiday entitlement for part-year workers should not be pro-rated so that it is proportionate to the amount of work that they actually perform each year. Part-year workers are entitled to 5.6 weeks of statutory annual leave calculated using a holiday entitlement reference period to determine their average weekly pay, ignoring any weeks in which they did not work. As a result of this judgment, part-year workers are now entitled to a larger holiday entitlement than part-time workers who work the same total number of hours across the year.

The consultation seeks to understand the implications of the judgment on different sectors including agency workers who have complex contractual arrangements.

The Government is considering introducing legislation to resolve this anomaly by allowing employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion with the total annual hours they work. The simplest way to do this would be to introduce a 52-week holiday entitlement reference period for part-year workers and workers with irregular hours, based on the proportion of time spent working over the previous 52-week period.

The Government proposes that statutory annual leave entitlement for part-year workers and workers with irregular hours should be calculated by employers using following two steps:

  • Calculate the total hours a worker has worked in the previous 52 weeks (the reference period), including those weeks without work.

  • Multiply the total hours worked by 12.07% to give the worker’s total annual statutory holiday entitlement in hours.

The consultation concludes at 23:59 on 9th March 2023. We will keep you updated on this matter.

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