The Calculation of Holiday Pay for Employees with Irregular Hours
As we move into the summer months, employers are likely to receive more frequent requests for leave from employees. Whilst the calculation of holiday pay is straightforward for fixed hours contracts, how is holiday pay calculated for employees who work irregular hours?
The starting point is the statutory position; an employee is entitled to two weeks of paid holiday after he has completed the first year of continuous employment and then same for each subsequent year of continuous employment (s.12(1) Employment Act 2000 (‘the Act’)). Where a contract of employment states a period of leave which is in excess of the statutory position, then an employer must honour that contract of employment.
Only employees falling under the definition of ‘employee’ in the Act will be able to assert any right to holiday pay. This means that they must be ‘employed wholly or mainly in Bermuda for renumeration under a contract of employment’ or must be able to show that they ‘perform services wholly or mainly in Bermuda for renumeration on such terms and conditions more akin to an employee than an independent contractor’ (s.4(1) the Act). For the purposes of this article, it is relevant to note that an employee has to work fifteen or more hours a week to receive the protection of the Act.
What happens when you have a contract of employment for an individual whose hours above 15 hours a week are variable or irregular? How is holiday calculated for them?
The government guidance in ‘A Guide to Working in Bermuda’ states ‘The amount of pay to be received during [leave] will reflect the employee’s regular weekly wages, or in the case of an employee whose wages vary from week to week, a calculation of the average week’s wages earned by the employee over a certain period’. Beyond this, the government has not specified any particular method for such calculations and there is no case law on the point.
Employers may, therefore, finding themselves looking to the UK for guidance. The UK’s position changed last summer as a result of Harpur Trust v Brazel [2022] UKSC21. Prior to Brazel, the method of calculation was that holiday pay was calculated at 12.07% of every hour worked based on the minimum holiday entitlement which derived from the Working Time Regulations 1998. This was a well-established practice by employers and was a straight forward method.
The UK Supreme Court, however, declared the ‘12.07% method’ unlawful and instead concluded that the ‘calendar week method’ was the correct way to calculate holiday pay. The ‘calendar week method’ is best explained in guidance produced by the UK government titled ‘Calculating holiday pay for workers without fixed hours of pay’, however put bluntly the method requires an employer to take a reference period of 52 weeks, or whatever time the employee has worked if less than 52 weeks. The employer must look at how many of those weeks were actually worked to find the total amount earned in those weeks, and then divide that amount by the number of weeks in the reference period. This will produce the pay rate for one week.
The Brazel decision was controversial, and whilst a UK government consultation is currently underway to review the Working Time Regulations 1998, and its effect on the calculation of holiday pay for those working variable hours, it remains binding law in the UK. Most importantly, however, the ‘weekly calendar method’ does seem to align with the principles outlined in ‘A Guide to Working in Bermuda’. As such, the ‘weekly calendar method’ is arguably the best method of calculation available to employers in Bermuda in the absence of any further guidance or authority.
First Published in the Bermuda Chamber of Commerce Newsletter (Chamber Insider), May 2023
