There was a significant ruling in the Supreme Court on 21 July which impacts those who are on zero hours contracts and calculating holiday pay. If you utilise this type of contract it is important that you read the following.
It has been ruled by the Supreme Court that the traditional method of 12.07% of the usual hours worked method cannot be used.
For casual workers, the approved approach to calculating holiday pay involves calculating the weekly average pay and then multiplying that by the amount of holiday taken in weeks. The following steps should be adopted:
Step 1: For the 52-week period immediately before the period taken (or designated) as leave, the total pay earned by the worker should be calculated. This is then divided by 52 to give the average weekly pay. When calculating the average weekly pay, any weeks in which the employee earned no pay must be disregarded and the 52-week period should be extended so that there are 52 weeks of earnings used (subject to a maximum for the reference period of 104 weeks).
Step 2: This weekly average should then be used to pay the worker for each week of their 5.6 weeks of leave taken (or designated as taken). For example, if the worker is deemed to take a period of 1.2 weeks as leave then they would receive 1.2 x the relevant average weekly pay for the reference period immediately before the leave is taken.
Please note that holiday taken x average weekly pay is likely to be significantly more money than would have been payable if the 12.07% approach was adopted.
The challenge will be in calculating the average weekly pay as this will involve not only considering the pay received but also remembering to ignore weeks where no pay was earned. For casual workers who earn something every week this is not so much an issue. However for casuals who frequently do no work at all for an entire week the calculation could be more complicated.
This is quite an astonishing ruling as some workers may be better paid than full-time or regular hours counterparts. However as that approach is not unlawful it was felt it was not a reason to adopt a different approach to calculating holiday pay for casual workers.
This is a further nail in the coffin for using zero hours contracts and particularly impacts industries such as hospitality and retail. An administrative headache!
Do give me a call if you need to talk this through further, however I would also advise you discuss with your payroll provider in calculating average weekly pay.
This article is written by Serena Bower of Bower HR.
