Are your school's term time only workers paid the correct amount of holiday pay?

Paying holiday pay at the rate of 12.07% of pay may not always comply with contractual or statutory entitlements.

The minimum statutory holiday entitlement for workers under the Working Time Regulations is 5.6 weeks. For full time workers, this is 28 days' leave. It can be tricky to calculate holiday entitlement for workers who do not work full time or all year round. Often, employers use a calculation of 12.07% of hours worked to work out holiday leave entitlement. This calculation is based on a standard working year of 52 weeks minus 5.6 weeks (46.4 weeks): 5.6 is 12.07% of 46.4 weeks.

It is also common for employers to use this calculation for holiday pay and so simply to pay 12.07% additional pay as holiday pay. However, as the case below highlights, this calculation will not always be compliant with the statutory rules for holiday pay set out in the Employment Rights Act 1996. Under these rules, a week's pay should be paid for a week's leave. Where a worker has variable hours, a week's pay is the average weekly pay over the last 12 working weeks before the holiday was taken.  This calculation ignores any weeks during which the worker received no pay.

The case: Brazel v The Harpur Trust

In this case, the EAT considered the correct calculation of holiday pay for a term time only employee. It held that the term time only employee should have holiday pay calculated on the basis of the last 12 working weeks’ pay rather than on the basis of 12.07% of pay.

The facts

Mrs Brazel worked under a term time only zero hours contract as a visiting music teacher at Bedford Girls' School. She worked between 32 and 35 weeks per year. Her contract entitled her to 5.6 weeks' paid annual leave. This was not stated to be pro-rated. She was required to take all her leave during school holidays. Her holiday pay was calculated as 12.07% of her pay and was paid three times a year at the end of April, August and December (because these were noted to be periods during which she taught fewer lessons and so would have received less pay).

The employment tribunal decision

She brought a claim for unlawful deductions from wages, arguing that her holiday pay should be calculated under the week’s pay provisions set out in the Employment Rights Act and not by paying her an additional 12.07% of pay. In the case of a term time worker this would mean holiday pay is based on the average pay over the last 12 working weeks, excluding any school holiday weeks. If Mrs Brazel worked 32 weeks in a year, the tribunal calculated that she would, by the 12 week average calculation, have been paid holiday pay at a rate of 17.5% of annual earnings. The tribunal dismissed the claim, determining that words should be read into the legislation to ensure that the statutory entitlement to holiday pay is pro-rated, in effect capping holiday pay at 12.07% per cent of annualised hours.

The EAT decision

The EAT disagreed and remitted the case back to the employment tribunal to calculate by how much Mrs Brazel had been underpaid for her holiday leave. It stated that the contract clearly set out Mrs Brazel's entitlement to 5.6 weeks' leave, and that the Employment Rights Act contains a clear mechanism for calculating a week's pay where there are variable hours. There was no basis on which to read words into the legislation to pro-rate the 5.6 week entitlement.

It made clear that there is no requirement to ensure that full-time workers are not less favourably treated than part-time workers. It pointed out that legislative protection works the other way around to protect part time workers from being less favourably treated than full-time workers.

Wrigleys' Comment

Chris Billington, Head of Wrigleys' Education team, noted that "School employers who employ term time only workers should carry out a check to see whether their holiday pay is compliant with their contracts and with the statutory minimum entitlement. The lesson from this case is that using a blanket calculation of 12.07% of pay may not always result in the correct holiday pay amount."  

Paying "rolled up" holiday pay, that is making an additional payment during the weeks that the employee works rather than paying a worker when they are on holiday is unlawful. Where employees receive their full leave entitlement and pay, the risks to employers of paying holiday in this way are, however, low.

Schools often pay term time only workers an equal amount in every month of the year. An employment tribunal found in 2012 that the practice of paying term time only workers in equal instalments through the year did not equate to "rolled up" holiday pay (Gee and others v Governing Body of the Haberdashers Aske's Boys' School ET/3304122/10).

However, schools which pay term time only workers in equal instalments through the year should carry out a check to ensure that the National Minimum Wage is being paid in every pay period. To avoid the risk of underpayment in some months, schools are advised to follow HMRC guidance by ensuring that term time only workers' contracts include the number of annualised hours.