Government seeking views on holiday entitlement for part–year and irregular hours workers

The Department for Business, Energy and Industrial Strategy (BEIS) has opened a consultation into how the holiday entitlement of term-time and irregular hours workers is calculated with a view to providing greater certainty to employers. This in response to the Supreme Court’s decision in Harpur Trust v Brazel which held that workers who have a continuing contract throughout the year, must not have their entitlement pro-rated to be proportional to the amount of work performed in a full year (i.e. so that it reflects that such workers work some weeks, but not others within the leave year).This was so even if this resulted in part – year workers receiving a “proportionately greater leave requirement than full-time workers”.

What does the Consultation propose?

• The consultation proposes to legislate contrary to the decision in Brazel so that part–year workers and workers with irregular hours receive a pro-rated holiday entitlement proportionate to the hours that they work. The proposed solution for their holiday entitlement is:

“Hours worked in previous 52 weeks x 12.07% = annual statutory entitlement in hours.”

• It is also proposed that the 52-week reference period will be fixed and based on the previous leave year. Unlike the calculations for holiday pay which discounts weeks in which no work is done, this 52-week reference period will use the most recent 52 weeks, including weeks in which workers perform no work.
• For workers in the first year of employment, the Government proposes to use system of accrual similar to that in Regulation 15A of the Working Time Regulations. Holiday entitlement will accrue at the end of each month (rather than at the beginning of each month) according to the following formula:

“Hours worked in previous month x 12.07% = monthly statutory entitlement in hours.”

 This calculation will be based on actual hours worked and employers would have the discretion as to whether or not they allow workers to take holidays which have not yet accrued.

• In addition, in order to calculate how much holiday is used for a “day off”, the consultation proposes that the 52-week reference period is used to calculate the number of hours in a “flat average working day”. It is not clear how this average day is calculated for a worker in their first year of employment.
• The consultation proposals also suggest there should be amendments to the rules surrounding the holiday entitlement of agency workers who are engaged by an employment business or umbrella company. This would involve calculating entitlement at the end of a month based on 12.07% of the hours worked that month. They would then have the choice to take holiday on the assignment or to receive payment in lieu when the assignment ends. The consultation also proposes that when such workers are not on assignment, they will not accrue any holiday entitlement and the use of the 52-week reference period for holiday entitlement will depend on the nature of the assignment and/or whether they are employed by an umbrella company.

What can employers do?

Employers will welcome the Government’s intention to clarify a complex area. There are aspects of the consultation’s proposals that will still require clarity, for example, how is a worker’s entitlement to be calculated when they have worked for more than 1 year but there is still an incomplete leave year remaining?

Most importantly, the BEIS wants to know how employers have been calculating holiday entitlement to date and what their views are on the proposals. The Consultation also provides an opportunity for employers to explain what areas of the law surrounding holiday entitlement for irregular hours workers remains uncertain and how this could be fixed.

The deadline for submissions is 11:45 on 9 March 2023. Responses can be submitted from the Consultation page here.