U-Turn in Annual Leave Calculation
U-Turn in Annual Leave Calculation
You may have read our blog in August 2022 where we discussed the shock Supreme Court ruling surrounding annual leave entitlement of term-time and part-year employees. You can read this previous article here. Following on from this, there has been a significant U-turn in the ruling.
It involved the case of Harpur Trust v Brazel. The Supreme Court’s ruling resulted in many businesses having to re-evaluate and change how they calculated leave for ‘atypical’ workers. The guidance provided by ACAS to utilise the ‘12.07%’ method to calculate leave was discarded overnight. It has been a costly and timely exercise for many and sparked a debate as to whether this new ruling was unfair. This was because ‘part-year’ workers were entitled to often more generous holiday arrangements than those that work all year.
Thankfully, in a U-turn to this ruling, the Government has launched a consultation on proposed changes to the Working Time Regulations 1998 to tackle this. The consultation paper recognises that the Supreme Court’s interpretation of the regulations does not reflect the intention of the legislation.
What are the Government proposing?
The Government are intending to approve the ’12.07%’ method and allow employers to calculate holidays in hours. This is a positive move as opposed to the current ‘weeks’ method under the current legislation.
The point of this proposal is to introduce legislation that “allows employers to pro-rate holiday entitlement for part-year workers so that they receive leave in proportion with the total annual hours they work”.
What does the new annual leave ruling mean?
Rather than the current year, the 12.07% method will be used to calculate the following year’s annual leave entitlement. An Employer will use the current year’s holiday accrual as a reference for the preceding holiday year.
The paper proposes that in the first year of employment, holiday entitlement would accrue on a month-by-month basis as permitted under the current Working Time Regulations 1998. What this means is that at the end of each month in the first year of employment, the worker will have accrued 12.07% of hours worked in that previous month (on a cumulative basis throughout the year).
Benefits and challenges to this new ruling
Employers will likely be relieved by the proposed endorsement of the 12.07% method by the Government. Although, there will be a lot of frustration as this has taken up unnecessary time and effort for employers as a result of the Supreme court ruling. A benefit for an atypical worker is that it allows them to be able to plan, as they will be aware in year two of employment, what their holiday allowance will be for the year, rather than awaiting a month-by-month basis accrual.
Some questions still arise surrounding the practical implementation of this. We do not all only employ people at the beginning of a holiday year. Therefore, there is uncertainty about how employers make the switch from monthly accrual to the year if we are still only part-way through a holiday year. In addition, questions on what should happen if an employee works more hours and accrues holidays accordingly in 2023, but then works less in 2024. As they will they be given more holiday allowance than they have actually worked?
We endeavour to keep you updated on developments of this ruling to help you remain compliant.
If you are uncertain about how to calculate annual leave entitlements within your business, get in contact with our team of experts today.
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