The Harpur Trust vs. Brazel case, which was decided by a court not long ago, brought the topic of holiday compensation for seasonal and part-year workers into the spotlight.
We are going to walk you through the conclusions that were reached in the case and what those conclusions signify for you as an employer.
What happened in the Harpur Trust vs Brazel case?
Ms. Brazel is a music instructor who formerly held a permanent zero-hour contract and determined the number of hours she worked each week based on the number of individual music sessions that were booked. She claimed that the increased holiday pay rate left her in a worse financial position than she would have been in had the Working Time Regulations been in effect. According to the school, because she only worked for a portion of the year, her compensation was calculated according to the 12.07 percent rule and was proportional to the number of weeks that she really worked.
What is the 12.07 per cent rule?
The calculation for the 12.07 percent rule, also known as the percentage technique, begins with a typical working year consisting of 46.4 weeks. This number is used since 12.07 percent of 46.4 weeks equals 5.6 weeks. On the other hand, this may result in workers receiving pay that is lower than what they are legally owed.
The fact that vacation time can be accumulated even during times when the employee is not working is one of the most important aspects of the Regulations, which contrasts with the 12.07 percent norm, which only takes into account times when the employee is employed.
In the judgement handed down by the Court of Appeal, Lord Justice Underhill came to the conclusion that the Working Time Regulations did not include provisions for the kind of pro-rating that is required in order to apply the 12.07 percent formula in the context of a worker who only works part of the year.
What does it mean for small business owners?
There has been no change in legislation, but the judgement has made it possible for there to be other instances like this one, therefore it will be good to assess how you pay workers on a part-time or seasonal basis.
This ruling, in its most basic form, applies to any employer who employs people who work sporadic hours at specific times of the year but who do not have a contract that is in effect throughout the entire year. Examples of these types of people include workers in the education system and seasonal staff.
In accordance with the Working Time Regulations, every worker should be given the full statutory minimum of 5.6 weeks paid holiday per year, and the pay for their holiday pay should be calculated using the calendar week method of averaging a week’s worth of working hours. In addition, the number of working hours that should be counted towards the worker’s holiday pay should be based on the working week method (averaged over a 52-week period and using weeks where they worked).
Having said that, you may still choose when they take their holiday, and you can utilise the worker’s hourly rate when computing the rate of pay when it comes to holiday pay.
You might give contracts for less than a year to workers who are paid on a part-year or zero-hours basis and then issue a p45 at the conclusion of the shorter-term contract. The disadvantage of this is that there is case law that demonstrates, in the context of a school environment, the terms might be connected together to constitute continuous service.
In addition, employees who have a succession of contracts back-to-back over the course of a period of two years can be recognised as permanent employees and are entitled to a permanent contract of employment if they meet certain criteria. Even though the employee is working on a succession of fixed-term contracts, they are still entitled to permanent status and, as a result, 5.6 weeks of vacation time, unless major gaps are taken in between the contracts.
Instead of keeping your seasonal workers as bank staff until such time as they resign or you terminate them, you will be required to offer fixed term contracts and issue P45s after the contract expires if you are hiring seasonal staff for the summer or Christmas. This is the case whether you are hiring seasonal staff for the summer or Christmas. This indicates that additional expenditures associated with recruiting, onboarding, and training will be incurred for each’season.’
The difficulty of administrative work associated with calculating annual leave for these workers contributes significantly to the overall expense of the endeavour. Before leaving on vacation, every part-year worker will be required to have their holiday pay calculated based on the total number of hours they have worked during the course of the previous year’s 52-week period. This must be done in order for the worker to be eligible for holiday pay. This may not be as tough of a procedure as you may think it is, particularly if you only have a few people that work part-time during the course of the year. On the other hand, if you employ a big number of people on a seasonal or part-time basis, this might become a significant monthly burden for the finance department or the payroll provider that you use at your company.
Another dimension of the company’s exposure to financial risk is represented by the actual cost that must be borne in order to meet the obligations regarding the higher holiday pay entitlements. An employee who is recruited on a permanent basis, works full-time during the entirety of the summer season (12 weeks), and is eligible for paid annual leave in the amount of 6.5 days is considered to be a summer seasonal employee. They are now entitled for a total of 28 paid vacation days each year, making them eligible for the increased benefit.
The expense of litigating a dispute in front of an employment tribunal is the final possible financial risk. If an employee chooses to take you to an employment tribunal for unpaid holiday pay, you will be required to pay legal costs and probably their costs as well, in addition to the unpaid holiday pay and possibly any fines that are applied, unless you choose to settle the matter outside of court. If you do settle the matter outside of court, you will not be required to pay legal costs. You have the option of reaching a settlement outside of court if an employee files a claim against you for unpaid holiday pay with an employment tribunal.
In addition, it is essential to pay attention to the administrative tasks that need to be completed, such as updating employee handbooks and employment contracts, reprogramming HR software, and monitoring time attendance. These are all activities that need to be completed as quickly as possible.
In addition to that, there is a chance that you may be questioned regarding backpay. An illustration calculation has been made by James Poyser, who is the Chief Executive Officer of inniAccounts and the Founder of offpayroll.org.uk. He did this by utilising the judgement. A holiday pay payout of five thousand and six hundred dollars would be available to a part-time sports coach who worked for only one week and made a total of one thousand dollars. “Although this case is hypothetical and exaggerated, it underlying the particularities currently confronting employers and further highlights the dangers of zero-hours contracts,” he added. “Although this case is hypothetical and exaggerated, it underlying the particularities currently confronting employers.” “This case emphasises the particularities presently faced by companies and further exposes the hazards of zero-hours contracts.” [Citation needed]
What about umbrella companies?
“This has particular and challenging ramifications for umbrella companies,” said Poyser. “The umbrella industry will now be facing multi-million-pound claims from workers for underpaid holiday pay. Umbrella companies have no recourse to reclaim this compensation from end hirers (the companies the workers performed the work for), meaning they will need to pay compensation from their own profits.
“Given this unexpected compensation claim and the wafer-thin margins umbrella companies operate on (no thanks to the aggressive kickbacks that exist in this market), I believe this year we will see more umbrella companies enter administration. The situation may well be exacerbated by no-win-no-fee practitioners with aggressive marketing campaigns.”
He added that, going forward, umbrella companies must manage the complexities of holiday pay along with the commercial risk surrounding this. Increased risk in the umbrella industry predicates unethical practices as umbrella companies turns to skims and scams (at the workers expense) to maintain their profitability, he added.
Employment tax specialist, Rebecca Seeley Harris, also said: “Off-payroll rules have exacerbated this situation – employers are employing people as permanent workers but putting them on zero contract/casual hours to compensate for the tax risks. Too many people who want to make a fair wage, on flexible terms, are exposed because of out of touch tax law, and too many employers are getting it wrong. This outcome is a massive deal for employment rights in this country. We need to take heed and overhaul regulation, and it must be done quickly.”