Time to examine the way you calculate holiday pay for term time workers

Most workers have a right to a minimum of 5.6 weeks’ paid annual leave under the Working Time Regulations 1998 (WTR). This amounts to 28 days for a full-time employee. employers give an enhanced entitlement in employees’ contracts.

On 6 April 2020 a change to calculating holiday pay was introduced. The reference period used in holiday pay calculations increased from 12 weeks to 52 weeks.  Because of this change, the Government has updated its guidance on calculating statutory holiday pay for workers without fixed hours or pay. The aim of the change is to ensure that workers who do not have a regular working pattern throughout the year are not disadvantaged by having to take their holiday at a quiet time of the year when their weekly pay might be lower.

However, for those workers that work part of a year – for example, term-time workers – a different approach needs to be taken following a recent Court of Appeal’s decision which it was held that holiday entitlement for part-year or term time employees is not subject to a pro rata reduction.

The Claimant was a term-time only music teacher. The school at which she worked had adopted a calculation for holiday pay that averaged working hours across a year and paid her holiday pay equal to 12.07% of annual pay. 12.07% of pay is equal to pay for 5.6 weeks, divided by 46.4 weeks (the balance of the year after the deduction of 5.6 weeks leave). The school calculated her earnings each term and paid her 12.07% of that figure at the end of the Christmas, Easter and summer terms. She then took her holiday during school holidays.

If the statutory test of averaging earnings over a 12-week period was applied, the Claimant would have received a higher amount of pay, stated in the judgment to be 17.5% of her annual earnings. The Court of Appeal saw no reason for this approach not to be taken.

For employers, this means that if they are using the 12.07% calculation and this is not consistent with the result from calculating average pay over the reference period, the employee will look to their employer to compensate them for the balance.

In light of this statutory change to the reference period for calculating holiday pay, and the new case law for term-time workers and those who are only paid for hours actually worked, employers should review the approach they take to calculating holiday pay.