Tag Archive: Working Time Regulations

Holiday and casual workers: the 12.07% formula challenged

A recent decision of the Employment Appeal Tribunal (EAT) casts doubt on the practice of employers fulfilling their obligations to allow paid annual leave to casual workers by providing for holiday accrual at the rate of 12.07% of hours worked.


Brazel was a part-time music teacher, retained on a zero hours contract.    She worked mostly during term-time and her hours fluctuated weekly.  She had a contractual right to 5.6 weeks’ paid holiday, mirroring her statutory right,  and she was required to take holiday during school holidays.

By way of holiday pay, Brazel was paid 12.07% of the actual hours worked each term at the end of the term, so she received holiday pay three times a year in her March, August and December pay packets. The employer took this approach based on the ACAS guidance on holidays and holiday pay for casual workers, rather than calculating holiday pay based on the normal rate of pay averaged over the 12 weeks prior to holiday being taken, which is the methodology required by the Working Time Regulations.

The Employment Tribunal upheld the employer’s approach. It decided that a principle of pro-rating should apply, so that either (i) in the case of a part-time worker, like Brazel, working fewer than 46.4 weeks per year, the statutory scheme by which a week’s pay is calculated should be “read down” so that holiday payment should be capped at 12.07% of annualised hours; or (ii) the entitlement to 5.6 weeks’ leave should be pro-rated,  with leave entitlement based on the amount of weeks worked in a year.

EAT decision

The employee’s appeal against the Employment Tribunal judgment was upheld. The EAT’s conclusion was that Brazel’s holiday pay should have been calculated using the 12 week averaging method.   The EAT did not consider there to be a requirement to pro-rate the leave entitlement of part-time employees (which is what the 12.07% formula achieves), whether to avoid a “windfall” for term-time only workers or to avoid full-time employees being treated less favourably than part-timers.

The EAT also commented that the overriding principle of the Part-time Workers Regulations is that part-time workers are not to be treated less favourably than full-time workers. There is no principle to the opposite effect, and as such there was no basis for the tribunal’s amendment of the statutory 12 week averaging scheme, the provisions of which are unambiguous.


The facts of this case involve a term-time only teacher. However,   the principle of the EAT’s decision will apply equally to any business which uses the 12.07% accrual formula for staff on zero hours contracts or other casual working arrangements.  There are different versions of this approach – in some cases, like Brazel’s,  the accrued amount is paid at intervals throughout the year; in others, employees accrue 12.07% of hourly pay throughout their working weeks/months and receive the accrued amount when they take holiday or leave the business; finally, some employers “roll-up” an extra 12.07% into the hourly pay rate.  (Remember that, although rolled-up holiday pay technically breaches the Working Time Directive,  payments clearly identified as holiday pay on worker’s pay slip will be offset against any holiday pay claim).

The 12.07% method undoubtedly provides employers with a practical rule of thumb when calculating holiday accrual for casual staff.  Although it is not approved by legislation, as mentioned in the Brazel case,  the ACAS guidance refers to holiday entitlement for a casual worker as being 12.07% of hours worked over a year.  In addition, the Gov.UK online holiday entitlement calculator uses this formula.   Unfortunately, the value of this formula is now diminished and the Brazel decision leaves businesses with uncertainty and the risk of their established methods of providing holiday/holiday pay for casual staff being open to challenge.



Permanent link to this article: https://www.dlapiperbeaware.co.uk/holiday-and-casual-workers-the-12-07-formula-challenged/

ECJ ruling on working time for workers with no fixed base

The ECJ has handed down judgment today in Federación de Servicios Privados del sindicato Comisiones obreras (CC.OO.) v Tyco Integrated Security SL, Tyco Integrated Fire & Security Corporation Servicios SA, a working time decision. The ECJ held that the journeys made by workers without fixed or habitual place of work between their homes and the first and last customer of the day constitute working time.

In this Spanish case, the employer carried out a business installing and maintaining security systems. The company’s technicians installed and maintained security systems in homes and on industrial and commercial premises within the geographical area assigned to them. The workers had use of a company vehicle for travelling to and from home to the first and last customer of the day, as well as between customers during the working day. Their work was coordinated by a central office in Madrid. The workers also travelled to pick up parts and equipment to the offices of a transport logistics company near their home. The company calculated the technicians’ working time as starting when they arrived at their first customer and ending when they left their last customer. Time spent travelling to and from the first and last customers to home was counted as a rest period.

In the case of workers with a fixed place of employment, it is established law that travel to and from the workplace is not working time. The Spanish court made a reference to the ECJ to determine the position in respect of workers with no fixed place of work.

Following the opinion of the Advocate General, the ECJ held that in circumstances where workers do not have a fixed or habitual place of work, the time spent by those workers travelling each day between their homes and the premises of the first and last customers designated by their employer constitutes working time.

The Court noted that ECJ case law has consistently defined any period during which the worker is at work, at the employer’s disposal and carrying out his or her activity or duties as ‘working time’. It agreed with the Advocate General that the workers’ journeys were a necessary means of providing their technical services to customers and that they had to be regarded as carrying out their activity or duties during that journey time. As the employer set the list and order of the customers for the workers to visit, and the appointment times, the workers were not free to use their travelling time as they pleased and so were at the employer’s disposal. Further, as travelling is an integral part of being a worker without a fixed or habitual place of work, it could not be said that their ‘place of work’ was restricted to the physical areas of their work on customers’ premises. Consequently the travelling time has to be regarded as ‘working time’ under the Directive.

This is likely to have significant implications for employers in the care sector in particular, where workers visit clients in their homes, but will also affect other businesses employing workers with no fixed base. The ECJ specifically rejected the UK Government’s argument that the conclusion in this case would lead to an inevitable increase in costs for the employer, suggesting that the employer remains free to determine the remuneration for time spent travelling between home and customers. Travel time to and from work is not currently counted as working time for the purposes of the National Minimum Wage and this position is not directly affected by this decision as minimum wage rates are a matter for national law. However, employers may face difficulties with complying with rules on rest breaks and the maximum working week which may lead to increased cost, and they are likely to face pressure to pay workers for this additional working time.

Permanent link to this article: https://www.dlapiperbeaware.co.uk/ecj-ruling-on-working-time-for-workers-with-no-fixed-base/

Holiday pay decision in Lock v British Gas commission case

Kate Hodgkiss, a Partner in our Edinburgh office comments: The employment tribunal has handed down its decision in Lock v British Gas, one of the on-going holiday pay cases, this one concerning commission. Unfortunately the decision does not answer many of the remaining questions following the EAT’s decision in Bear Scotland (see Be Aware 4 November 2014) although it does confirm that commission must be included in the calculation of holiday pay.

The brief facts in Lock are that Mr Lock was employed by British Gas as a salesman, earning a basic salary of under £15,000 but with substantial potential for commission (up to 60% of his overall remuneration). During periods when he took annual leave, he was paid basic salary plus commission earned in previous weeks; on return from holiday, however, his remuneration would be lower as he had not had the opportunity to earn commission whilst absent on leave. He brought a claim for unlawful deductions from wages.

On a reference from the tribunal, the ECJ held that a worker should have commission included in holiday pay. The live issues in Lock were therefore:

  1. To determine the effect of the ECJ ruling and in particular whether the Working Time Regulations (WTR) are capable of being read to give effect to it;
  2. If so, whether the relevant commission scheme operate sin such a way that it effectively compensates for periods of annual leave so that even if the scheme is unlawful no money is due to the claimants;
  3. What is the correct reference period for calculation of holiday pay due;
  4. Whether the principles in the ECJ ruling apply only to the four weeks’ Working Time Directive (WTD) leave or also to the additional 1.6 weeks’ leave granted under the WTR; and
  5. How much the claim is worth.

However, the tribunal went on to deal with only issue one in any detail. In respect of issue four, it was agreed that the decision is relevant only to the four weeks’ WTD leave.

In respect of issue one, the tribunal regarded itself as bound by the reasoning of the EAT in Bear Scotland, but held in the alternative that that it agreed with the reasoning of the EAT in any event. The EAT said that Regulations 16(2) and 16(3) of the WTR should be applied with the inclusion of the words in italics below:

16(2)    Sections 221 to 224 of [the Employment Rights Act 1996] shall apply for the purposes of determining the amount of a week’s pay…subject to the modifications set out in paragraph (3).

16(3)    The provisions referred to in paragraph (2) shall apply-

            (e) as if, in the case of the entitlement under Regulation 13, a worker with normal working hours whose remuneration includes commission or similar payment shall be deemed to have remuneration which varies with the amount of work done for the purpose of section 221.

Section 221 ERA provides that where remuneration varies with the amount of work done, the amount of a week’s pay is the amount of remuneration for the number of normal working hours in a week calculated at the average hourly rate of remuneration payable in respect of the period of the previous 12 weeks. Presumably the average hourly rate for these purposes includes both basic salary and commission. The effect of the wording read into the WTR is to implement a 12 week reference period; however, it is not entirely clear whether this is settled as the tribunal had said that this issue was to be determined at a later date. It is also not clear precisely how the reference period will work, as commission paid in the 12 weeks before the calculation date will not be paid entirely in respect of hours worked during those 12 weeks; it may be necessary to average the pay over a different period. None of the holiday pay decisions so far have satisfactorily determined precisely how holiday pay should be calculated. There will need to be a further tribunal hearing in Lock to determine how much the claim is worth, which may provide some practical guidance.

Permanent link to this article: https://www.dlapiperbeaware.co.uk/holiday-pay-decision-in-lock-v-british-gas-commission-case/

Holiday pay must include commission, ECJ rules

 Kate Hodgkiss, Partner in the Edinburgh office, comments: The European Court of Justice (ECJ) has today handed down judgment in a case which could mean that employers face huge liabilities for claims for holiday pay. The issue arises because of an apparent conflict between UK and European law as to how holiday pay should be calculated and in particular whether elements of remuneration such as overtime and commission must be included.

The Working Time Directive (Directive) entitles workers to 4 weeks’ leave but does not specify how pay should be calculated.  The Directive is implemented in the UK by the Working Time Regulations 1998 (WTR). Under the WTR workers are entitled to 5.6 weeks’ leave and must be paid at the rate of a week’s pay for a week’s leave. The Employment Rights Act 1996 (ERA) sets out how to calculate a week’s pay; the calculation depends on a number of factors including whether or not a worker has normal working hours. The effect of the week’s pay provisions is that many common elements of remuneration, such as overtime, commission and bonus are excluded from statutory holiday pay.

However, in cases interpreting the WTD the ECJ has stressed the need for normal remuneration to be maintained during the period of annual leave.  In a 2011 case (Williams v British Airways) the ECJ ruled that (1) workers on annual leave should receive their normal remuneration and (2) normal remuneration entitled a worker to any payment which is intrinsically linked to the performance of the tasks which he is required to carry out under his contract of employment . The ECJ held that it is then left to the national court to assess the intrinsic link between the various components making up the total remuneration of the worker and the performance of the task he is required to carry out under his contract of employment.

Following Williams it has been argued in several claims in the UK tribunals that the WTR and ERA provisions conflict with EU law and that certain payments, such as commission or overtime payments, should properly be considered normal remuneration and be included in holiday pay calculations. 

The ECJ today handed down judgment in a reference in one such case, Lock v British Gas Trading and others and has restated the principle that holiday pay must correspond to normal remuneration. Lock receives a basic salary plus commission on the sales that he achieves.  The sales commission is paid several weeks or months after a sale is concluded and makes up approximately 60% of his total remuneration. While on annual leave, he was paid his basic salary plus the commission from previous sales that fell due during the period. However, Lock then suffered a reduced income in the months following his return to work because he had not secured sales, and therefore did not generate commission, while he was on annual leave.  Lock brought a claim for unpaid holiday pay and the tribunal asked the ECJ whether commission should be included in holiday pay.

The ECJ said that commission must be included as otherwise the financial disadvantage suffered might deter workers paid on a commission basis from taking leave. Commission will, of course, vary over time; the ECJ said that it was up to the national courts to decide how to calculate how much commission should be paid during any period of annual leave on the basis of a representative reference period.


This is not good news for UK employers, but is unsurprising given the ECJ’s earlier ruling in Williams. The recent trend in case law strongly suggests that UK employers may have to include in holiday pay calculations any remuneration intrinsically linked to the performance of the contract, including overtime and commission payments – at least so far as the 4 weeks’ WTD holiday is concerned.  Most employers will, at the moment, be calculating holiday pay on the basis of basic remuneration only.  These employers may therefore face significant liabilities for underpaid holiday in the event of claims.  The key question is how these ECJ decisions are applied in a series of appeals due to come before the EAT this summer.  The EAT is due to hear an appeal in the joined cases of Neal v Freightliner Limited and Fulton v Bear Scotland on 30 and 31 July. At least two more cases are now on appeal to the EAT and may also be joined with Neal. All these claims relate to overtime.  If the EAT rules that the UK law can be read to give effect to the ECJ decisions, while individual underpayments may be relatively small, they may accumulate to a significant liability when multiplied across a large workforce.  Failure to make the correct holiday payment is an unauthorised deduction from wages and claims may be brought at any time within 3 months of the last in a series of deductions.  This means that workers can potentially bring claims in respect of holiday pay going back many years (potentially back to 1998 if the underpayment has gone on that long although there are arguments for a limitation of 6 years), provided they bring the claim within 3 months of the last incorrect holiday payment. Alternatively, the EAT may decide that UK law is simply incompatible with the WTD in which case private sector workers would have claims against the Government rather than their employer, but public sector workers would be able to rely directly on the WTD to bring tribunal claims.

Employers may have some options to reduce their potential exposure to claims, or limit their liability in the future, but these will depend on the profile of the workforce, the elements of remuneration and the nature of the employer’s business. For the majority, the most sensible option may be to wait and see how the EAT deals with the appeals. Employers will face a tense wait for the EAT’s decision.

Permanent link to this article: https://www.dlapiperbeaware.co.uk/holiday-pay-must-include-commission-ecj-rules/

Employment law reforms continue apace: but no sign of any measures dealing with holiday and sickness absence

Kate Hodgkiss, a Partner in our Edinburgh office, comments:

As the holiday season gets well underway, employers may well be wondering when they will finally have a clear understanding of their workers’ holiday entitlements; after all, it is quite some time since Stringer made its mark in 2009 and left the whole question of the impact of sickness absence on holiday entitlement well and truly up in the air.  The Government initially responded positively to this, launching a consultation in May 2011 with its proposals for sorting out the conflict between UK and European law over this perennial HR issue.  However, the consultation closed in August 2011, and despite almost daily announcements about other employment law reforms, we have yet to see anything which clears up one of the most important, and common, issues employers have to manage.

By way of reminder, the UK’s Working Time Regulations 1998 (WTR) adopt a ‘use it or lose it’ approach to holiday entitlement.  On the face of it, therefore, workers who have not used up their full statutory holiday entitlement by the end of a holiday year have no right to carry forward the unused holiday into the next holiday year.

In Stringer, however, the ECJ decided that if workers are unable to take their holiday during the holiday year because of sickness absence, they must be allowed to carry it forward into the next holiday year.  Shortly after Stringer, the ECJ gave another judgment in the case of Pereda. Here, the ECJ found that where a worker’s prearranged holiday coincides with a period of sick leave, the worker is entitled to take their holiday at an alternative time.   The ECJ then  gave judgment in the Schulte case finding that there is a limit to the length of time that a worker on long term sick leave can continue to carry over untaken statutory holiday (in this case 15 months).  Schulte was then followed by the ANGED case which confirmed that a worker who becomes unfit for work during a period of statutory holiday must be entitled to reschedule the leave and that a worker who becomes unfit for work before a period of holiday must be able to take the holiday at a later date.

None of these findings are reflected in the WTR and therefore we are left with a direct conflict between the provisions of the WTR and European case law.  In practice, this means that employment tribunals have had to interpret the WTR to give effect to the case law, and this has resulted in conflicting decisions.  Although the issue was finally considered at Court of Appeal level in the Larner case, some questions still remained unresolved,  leaving employers with ongoing uncertainty as to their obligations towards their workers.

The Government set out in its Modern Workplaces consultation its proposals for bringing UK law into line with the European case law. The proposals include amending the WTR to:

  • Allow a worker to carry over their holiday into the following leave year in circumstances where the worker has been unable to take their annual leave due to sickness absence, or falls sick during scheduled leave, and it is not possible to reschedule the leave in the current holiday year.
  • Allow an employer to insist that leave that is untaken due to sickness absence should be taken in the holiday year if there is still an opportunity to do so and, conversely, allow an employer to require unused leave to be carried forward to the following leave year if there are good business reasons.
  • Limit the entitlement to carry leave forward to the four week leave entitlement provided for by the Working Time Directive (WTD) (so that an employer will not have to permit a worker to carry over the extra 1.6 weeks provided for in the WTR)
  • Require a payment in lieu of untaken holiday on termination of employment to include payment in respect of any untaken carried over leave.
  • Limit the ability to reschedule leave within the leave year where a worker has been sick whilst on scheduled annual leave to the four weeks’ leave provided for by the WTD.
  • Specify the order in which leave will be deemed to be taken, with the leave provided for by the WTD being taken first.

These proposals will bring some welcome clarity to this troubled area and assist employers to understand, and potentially limit, their obligations to their workers.  Employers will be able to review their contracts and procedures and take appropriate steps to ensure they are legally compliant.

It is about time that Stringer’s loose ends were neatly tied together – it is to be hoped that amongst the many reforms on the Government’s agenda, this one finally rises to the top and that the next announcement will be the one employers are really waiting for – an end to their holiday/sickness absence headache.

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Permanent link to this article: https://www.dlapiperbeaware.co.uk/employment-law-reforms-continue-apace-but-no-sign-of-any-measures-dealing-with-holiday-and-sickness-absence/