On 20 July 2022, the Supreme Court issued their ruling on a case concerning the calculation of holiday pay.

Our Business Development Director, Jason Medcalf discussed this case with UK Recruiter Managing Director, Louise Trance on a recent podcast, which you can listen to here.

UK Recruiter Podcast WIth Jason Medcalf.

Before the ruling in July, it was the industry norm to calculate holiday pay using the percentage method.

i.e. 52 weeks per year minus the 5.6 annual leave weeks gives 46.4 working weeks.

Divide the 5.6 annual leave weeks by the 46.4 working weeks = 12.07%.

However, the Supreme Court ruled against using this method and instead ruled in favour of using the Calendar Method, to calculate holiday pay.

Which in reality could leave a large shortfall for the business per contractor Holiday pay varies wildly depending upon individual contractors and how many weeks per year and days per week that they work and their rate of pay.

This is not new legislation; this is how our own Supreme Court interprets the existing legislation that is in place. This is where the agency liabilities are, which could have been building for two years or more!

Partnering with an Umbrella company or PEO run by an intermediary like People Group Services can work.

• Firstly, the workers are on employed contracts, so no one is attempting to use a technicality avoid payment of holiday pay.

• Secondly, as a portable centralised employer, an umbrella company / PEO is an aggregator of income from different sources. A day-to-day supply teacher might be do work for 5 different agencies over the course of 10 weeks, however all of that income is funnelled through one employer (us) which smooths out some of the wild fluctuations that we saw in the examples put before the court.

A.   There are fewer ‘no-work’ weeks where holiday pay is accumulating without any income. Regularity of work is increased.

B.   The average earnings are a more accurate reflection of all income from different sources, which keeps the calculated value of holiday pay manageable.

• Thirdly, intermediaries like People Group Services are practised at operating with discrete contracts with specific start / end dates, and all the supporting administration such as issuing of P45 upon completion of roles.

•  The default position is to withhold holiday pay until holiday is actually taken to enable an accurate calculation to be made. Only 25% of contractors elect to have their holiday pay paid out weekly in advance.

As a result of all the above we’re in a much better position to calculate and pay holiday pay according to the interpretation handed down in the Harpur Trust case simply and accurately based upon regularity of work and the average earnings.

This allows businesses who utilise part year workers to focus on their core functions and allow an expert like People Group Services to administer and pay the correct holiday pay as the employer.

Get in touch with People Group Services today to discuss this case even further and we can also offer a holiday pay calculator that can forecast your holiday pay exposure.