This week the Supreme Court handed down its long-awaited decision in Harpur Trust v Brazel.

The judgment clarifies that all workers on a permanent contract throughout the year, including part-year workers, are entitled to a minimum of 5.6 weeks’ holiday a year, irrespective of how many weeks a year they actually work.

This decision is likely to have a significant impact on the holiday pay of term-time workers, peripatetic music teachers, exam invigilators, sports coaches and other workers in the education sector who work on a casual, zero-hours or part-year basis.

Schools face complex holiday calculations and, potentially, increased costs, at a time they can least afford it.

Holiday pay: the statutory 5.6 weeks’ entitlement

Historically, many schools have been applying the 12.07 per cent method, which was previously set out in Advisory, Conciliation and Arbitration Service (Acas) guidance, to calculate holiday pay for their part-year staff.

This can result in part-year workers receiving less than 5.6 weeks’ statutory holiday entitlement.

The Supreme Court has determined this is unlawful and employers cannot pro-rata part-year workers’ holiday entitlement to reflect the fact they do not work all year round, even where this means that they will receive a proportionately greater leave entitlement than year-round workers.

How this decision will affect holiday pay calculations for different categories of workers is considered below.

Full-time workers

There is no change to the way holiday pay must be calculated for full-time workers. They are entitled to 5.6 weeks’ statutory holiday each holiday year and it should be paid at the rate of a week’s pay for each week of leave.

There is no cap on a week’s pay for this purpose. If the full-time worker has normal working hours, their week’s pay should be capable of being calculated without reference to those hours.

Part-time workers

No change again. This category of worker is different to part-year workers. They are contracted to work 52 weeks a year less the weeks they are on holiday, unlike a part-year worker who may be required to work only 39 weeks of the year, for example.

Part-time workers are entitled to 5.6 weeks’ statutory holiday every holiday year; however, this can be calculated as 5.6 of their regular working weeks.

For those 5.6 weeks, they are only relieved of working on the particular days they would otherwise have worked. For example, if a part-time worker has regular hours and works two days a week, they would be entitled to 11.2 days of paid annual leave a year: 2 days x 5.6 weeks = 11.2 days.

Part-year workers (including term-time staff)

This is the category of workers where schools may need to change their holiday pay calculations.

The calculation method that should now be applied requires employers to identify the amount of a week’s pay - and unfortunately, that is not as simple as it sounds.

For part-year workers, it is their average weekly pay during a 52-week reference period before the calculation date that counts.

When working out their average pay, all of the pay they have earned in that period should be taken into consideration but, crucially, any weeks where the part-year worker earned no pay must be ignored and instead earlier weeks up to 104 weeks before the calculation date must be brought into the calculation to make up 52 remunerated work weeks.

Applying the 52-week reference period to Lesley Brazel, she was actually entitled to 17.5 per cent holiday pay, significantly higher than the 12.07 per cent calculation method her employer, like many others, had used.

Taking into account unworked weeks during which a part-year worker does not earn anything is now known to be incorrect under the Working Time Regulations, as it may produce lower holiday pay than the worker is entitled to as the statutory minimum.

Where part-year workers’ holiday pay is calculated with reference to 52 worked weeks, it will almost invariably increase their entitlement, which will cost schools more money.

The formula is, therefore: the amount of a week’s pay x 5.6 = statutory holiday pay.

Employers would need to calculate the worker’s 52 remunerated work weeks each time the holiday calculation is performed, which should take place the day before their holiday.

An extreme example of how this might apply is an exam invigilator who works only three weeks a year but who works 40 hours in each of those three weeks. Assuming they are employed under a permanent contract, this part-year worker would be entitled to 5.6 weeks paid leave at their average week’s pay, which would be their weekly pay during the only three weeks they work each year.

This results in holiday pay almost twice the amount of their actual annual earnings.

If schools are paying their part-year workers under a holiday calculation that is more favourable than the statutory calculation method upheld by the Supreme Court, they should continue to pay as they have been until now, provided that the part-year worker is receiving the equivalent of 5.6 weeks paid leave.

What next?

Schools should check their holiday pay calculations to ensure their workers engaged under a continuing contract - including part-year workers - are receiving at least 5.6 weeks’ paid holiday and, if not, they should make adjustments without delay.

Failure to make necessary adjustments could result in claims from affected workers in the future.

Schools may also face claims for back pay in respect of any underpayment of holiday pay going back up to two years.

Schools will be considering their risk profile, looking at ways they will address holiday going forward and their use of permanent contracts.

This could give rise to claims for discrimination and breach of contract, therefore schools should seek advice from their HR and legal advisers.

Sarah Linden is a senior associate at the law firm Browne Jacobson