Part year holiday pay ruling– nightmare for brollies?

A recent supreme court ruling looks set to change the way that holiday pay is calculated for part year workers, potentially leaving the door open for eligible contractors to claim backdated holiday pay. But the story is far from simple.

Read on to find out more.

Prorating part year holiday pay is unlawful – Supreme Court

A music teacher who found her pay was less than expected has again won her case against her employer regarding holiday pay. Challenging an earlier decision by an employment tribunal, the music teacher won her case in The Court of Appeal, who determined that annual leave entitlement cannot be calculated using the prorated method. The school then took their case to the Supreme Court and lost again.

Complicated calculations

Holiday pay can be difficult to calculate for part time workers, particularly those who only work certain weeks of the year. What made this case even more complicated was the worker in question is a visiting music teacher whose hours and working days vary according to demand. Her employer used the standard method of prorating her holiday pay according to the weeks she had actually worked.

The school had initially won the case at an employment tribunal, which found that term-time only workers should have annual leave entitlement capped at 12.07%.

This is where the complex maths comes in. Working Time Regulations (WTR) state that all workers on a permanent contract are entitled to 5.6 weeks holiday per year (which is 12.07% of the year). As a result, it was the guidance of ACAS (which has since been removed), and standard practice, for employers, umbrellas, and employment agencies to calculate holiday pay for part year workers using the pro-rata method because they are not required to work all year round.

The Supreme Court have now ruled that workers who are on permanent contracts but who are only required to work for part of the year (think school staff, exam invigilators, event stewards, summer sports coaches etc) cannot have their annual leave entitlement pro-rated and instead are entitled to the full 5.6 weeks statutory holiday.

This ruling could be potentially costly for umbrellas and agencies, as it potentially opens the door for eligible contractors to claim backdated holiday pay. However, it’s important to remember that this is simply one ruling and is not yet law. No contractor has the automatic right to backdated holiday pay, even if they find themselves in the same position.

Holiday pay – moving goalposts

This case is yet another incidence of holiday pay hitting the news, and further proof that the regulation of the umbrella industry, and therefore clear guidance regarding these kinds of issues, needs to come sooner rather than later.

Compliant umbrella companies want to ensure that their contractors get a fair deal on all their pay and benefits. And independent worker champions iWork have teamed up with Contractor Voice to raise awareness of the holiday pay issue and give both contractors and compliant brollies a chance to share their experiences of holiday pay with the hashtags #doyougetyours and #wegiveyouyours.

We at Ship Shape are proud to support our contractors and always ensure that our contractors holiday pay is calculated compliantly and according to the latest guidelines. If you have any questions at all, please don’t hesitate to get in touch.