Most employers do not understand new holiday pay ruling, study finds

Lawyers urge unsure businesses to seek guidance following Supreme Court decision on remuneration for part-year workers

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The vast majority (88 per cent) of employers “don’t fully understand” how a recent Supreme Court ruling on holiday pay could impact their business, a study has found.

The survey, conducted by WorkNest, found that only 11 per cent of employers had updated their procedures on holiday pay following the ruling, while more than half (57 per cent) admitted they had not done so.

The poll of 572 businesses and HR professionals, which quizzed their knowledge on the recent Harpur Trust v Brazel Supreme Court ruling on holiday pay for part-year workers, found that almost a third (30 per cent) thought the new method of calculating holiday pay would impact between 10 and 50 per cent of their workforce. 

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Kate Palmer, HR advice and consultancy director at Peninsula, warned that companies that do not get ahead of their policies could find themselves in court. “It is likely employers that fail to update their policies will have successful tribunal claims brought against them,” she said, adding that it was “vital for all employers to update their policies, or seek guidance if they are unsure how to proceed”. 

Samantha O’Sullivan, policy lead at the Chartered Institute of Payroll Professionals, said businesses may also risk damaging reputation and employee engagement if they did not act soon, commenting that now was the “ideal opportunity” for employers to review their contracts, especially for those engaged in a full year who do not work for the entire length of it. 

“Either employers need to factor this additional pay into their budgets, or they will need to consider the terms on which they hire these workers and whether they are required to remain under contract during periods of no work,” she said.

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More than half (55 per cent) said their main concern was updating their current procedures to reflect the new legislation. A minority (16 per cent) said their worry was to do with a lack of HR software that accurately tracks holiday entitlements and pay.

The ruling, which was handed down in July this year, stated that workers on part-year contracts, such as those in the education sector on term-time only contracts, may be entitled to more pay than was previously set out for them.

It ruled that the ‘percentage’ method of calculating holiday pay, where some workers were given holiday pay equivalent to 12.07 per cent of the hours they worked in a year, was unlawful. 

An Acas spokesperson told People Management that all employees were entitled to statutory annual leave, regardless of their status as a part-time, full-time or zero-hours worker. They advised those employers that are unaware of how they calculate their employees’ holiday to check the Acas website and the government’s online holiday entitlement calculator.

Failing to do so means businesses could be calculating holiday pay incorrectly, which may breach the employment contract, they added.

Colin Godfrey, employment expert at Taylor Wessing, commented that the end result leaves a lack of clarity, saying it only tells employers what they should not do, as opposed to giving clear advice on alternatives when calculating pay. He said this may lead to confused employers “burying their head in the sand in the hope they will not be impacted”. He added: “Doing nothing could be the most dangerous [thing] of all.”