The Harpur Trust v. Brazel case, a recent court decision, focused on holiday compensation for seasonal and part-year employees.
We’ll go through the case’s conclusions and what they signify for you as an employer.
What happened in the case of Harpur Trust v. Brazel?
Ms Brazel, a music instructor, worked according to the number of private music lessons arranged in any given week and was on a permanent zero-hours contract. She said that she was in a worse situation without the Working Time Regulations. According to the school, her compensation was calculated using the 12.07 percent rule since she only worked a fraction of the year. It was proportional to the total number of weeks she worked.
What does the 12.07% rule mean?
The 12.07 percent rule, often known as the percentage approach, is derived using a regular working year of 46.4 weeks, with 5.6 weeks representing 12.07 percent of that number. However, this can result in employees being paid less than they should.
One significant problem is that, according to the Regulations, vacation time is collected during non-working times, although the 12.07 percent criterion solely considers working time.
Lord Justice Underhill of the Court of Appeal ruled that the Working Time Regulations did not allow for the kind of pro-rating that is the basis for the 12.07 percent formula’s use in the instance of a part-year employee.
What does it signify for proprietors of small businesses?
The law hasn’t changed, but because of the judgment’s potential impact on future instances like this, it would be a good idea to reassess how part-year employees are compensated.
Any company that employs seasonal or educational personnel, or other employees who work sporadic hours at various seasons of the year but do not have a regular contract throughout the year, would be impacted by this decision.
These employees must get the full 5.6 weeks of legally required paid vacation time each year by the Working Time Regulations, and their holiday pay must be calculated using the calendar week technique, which averages a week’s worth of hours worked (averaged over 52 weeks and using weeks where they worked).
Nevertheless, you may still decide when they take vacation time and use their hourly rate to calculate how much they will be paid for their time off.
Ensure that no employees receive unpaid holiday pay when your seasonal workers end contracts. Requests for retroactive wages are another possibility.
Offpayroll.org.uk creator James Poyser, CEO of inniAccounts, utilized the decision to develop an example calculation. A part-time sports coach who worked one week and made £1000 may be eligible for $5,600 in vacation time. Although this case is fabricated and excessive, he said it illustrates the challenges companies already face and the dangers of zero-hours contracts.
How about umbrella organizations?
This has unique and difficult repercussions for umbrella corporations, according to Poyser. “Now that holiday pay has been underpaid, the umbrella industry will be dealing with multimillion-dollar lawsuits from employees. Umbrella corporations will have to pay compensation from their revenues as they have no legal recourse to recover it from end hirers (the businesses for whom the employees did the job).
“Given this unforeseen compensation claim and the razor-thin profits umbrella firms operate on (due to the aggressive kickbacks that exist in this sector), I anticipate more umbrella companies will go into administration this year,” the author says. The problem can be worsened by no-win, no-fee lawyers who use aggressive marketing strategies.
He continued by saying that moving ahead, umbrella firms would have to handle the challenges of holiday pay and the associated business risk. According to him, increased risk in the umbrella sector encourages unethical behaviour since umbrella firms resort to fraud and skimming (at the cost of their employees) to retain their profitability.
Rebecca Seeley Harris, an expert in employment taxes, added: “Off-payroll restrictions have worsened this scenario – firms are hiring individuals as permanent employees but placing them on zero contract/casual hours to offset the tax concerns. Because of outdated tax legislation and careless hiring practices, many individuals who wish to work for a decent salary and flexible hours are left out in the cold. The judgment has major implications for worker’s rights in this nation. Regulation has to be swiftly updated. Therefore we must pay attention.