James Poyser and Rebecca Seeley Harris comment on the Supreme Court’s ruling on pro-rated holiday pay for part-year workers.
The latest Supreme Court judgement could open the floodgates for claims of unlawful deduction of wages for underpaid holiday pay for part-year workers on casual hours, zero hours and irregular work patterns.
The Harpur’s Trust v Brazel case involved Ms Brazel, a music teacher who works during term time at a school. She believed her holiday pay should be calculated using her average earnings over a 12-week period and not pro-rated.
Her employer, Harpur’s Trust, calculated her holiday pay using the guidance provided by ACAS for staff who work on a casual basis or irregular hours. The holiday pay entitlement of 5.6 weeks is equivalent to 12.07% of hours worked over a year.
The Supreme Court ruled in Brazel’s favour and found that she should receive the same holiday pay as staff who work all year round. The Supreme Court found several issues with the Trust’s proposed alternative calculation methods, stating they were directly contrary to the statutory method set out in the Working Time Regulations.
What this means for umbrella worker contractors
This ruling means that thousands of part-year workers with a permanent contract should receive the same amount of paid annual leave as their colleagues working all year around.
Part-year workers on casual hours, zero hours and irregular work patterns – including umbrella company workers – whose holiday has previously been calculated using the pro-rated method could be entitled to back pay. Along with the Pimlico Plumbers case on holiday pay, this could cause significant disruption for umbrella companies.
Rebecca Seeley Harris, employment tax specialist and former senior advisor to the Office of Tax Simplification commented:
“Today’s outcome will have extraordinary repercussions for permanent, casual and zero-hour contract workers. Unless the government steps in very quickly to legislate, backdated holiday pay is now something workers in these situations are genuinely entitled to.
“The decisions taken by the Court of Appeal in the case of the Pimlico Plumbers case, and the Supreme Court today, emphatically signal that the Working Time Regulations are out of touch with modern day employment standards.”
“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.”
James Poyser, CEO of inniAccounts and founder of offpayroll.org.uk, said:
“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 entering into administration. The situation may well be exacerbated by no-win-no-fee practitioners with aggressive marketing campaigns.
“In addition, going forward, umbrella companies must manage the complexities of holiday pay, and the commercial risk surrounding this. Unfortunately, as we have witnessed over the years, 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.
“In an extreme example in today’s judgement, a part-time sports coach who worked just one week, earning £1000, could be entitled to £5,600 of holiday pay. Whilst this example is contrived, and extreme, it underlies the particularities now facing employers, and further underlines the risks of zero-hours contracts.
“Policy makers must sit up today and take note. This judgement once again shows how today’s employment legislation simply isn’t designed for how modern work is done. It’s time the government introduced legislation to bring clarity and protection to workers and umbrella companies alike.”