Calculating holiday entitlement when an employee’s hours change

It is common knowledge that the UK minimum statutory entitlement for annual leave is 5.6 weeks per annum for full time employees. Where an employee is part time, this entitlement is calculated on a pro-rata basis, usually by multiplying the numbers of days worked per week by 5.6.

But what happens where an employee changes their working hours midway through a holiday year? Does entitlement to annual leave that has already accrued need to be recalculated when working hours change?  Does an employer have to adopt a different approach if employment has terminated? The European Court of Justice (ECJ) recently looked at these questions in the case of Greenfield v the Care Bureau. In this case:

• Ms Greenfield’s working hours differed from week to week and her weekly pay varied according to the number of days or hours of work. In accordance with the statutory regulations, her holiday entitlement was therefore based on the working pattern for the 12-week period prior to the leave.

• During a period of leave in July 2012, Ms Greenfield took 7 days paid leave. In the 12-week period immediately before the leave, her work pattern was one day per week. This meant that Ms Greenfield had taken what equated to seven weeks annual leave. This exceeded her 5.6 week pro rata entitlement.

• In August 2012, Ms Greenfield changed her contractual hours to the equivalent of 40 hours per week.

• In November 2012 Ms Greenfield requested 5 days of paid leave. The Care Bureau informed her that as she had previously taken seven days leave at a time when her work pattern was one day per week she had therefore already exhausted her entitlement. 

• Ms Greenfield complained that her holiday entitlement should not only be recalculated from the period after her increase in hours in August 2012, but should also be retroactively calculated for the period before the increase.

What should happen where contractual hours are increased?

The ECJ decided that the two periods of work patterns (before and after the change in hours) should be considered separately. They confirmed the wide spread understanding that where an increase in hours occurs during the leave year, a recalculation should be carried out in respect of the leave entitlement. The future recalculation should however, only be made to the time spent working under the new period of work with increased hours.

The ECJ rejected the argument that the period prior to this should be recalculated also. However, they did state that where an employee had taken more holiday than their entitlement during the first period, this could be deducted from the second period of entitlement.

What should happen where contractual hours are decreased?

The position here has been confirmed in case law since 2010 with the ECJ decision in Land Tirol and has therefore been considered for some time now.

Where an employee has reduced their hours from full time to part time part way through a holiday year, the courts in Land Tirol confirmed that a pro-rata calculation of holiday pay cannot be applied retrospectively to annual leave already accumulated during the full time work. An employee would therefore be entitled to their full time leave holiday entitlement for the period they worked full time. A recalculation would then need to be made for the entitlement for the remainder of the holiday year only.

Would an employer have to change its calculation if employment were terminating or continuing?

No. The ECJ decision reconfirmed the position that the calculation of paid annual leave entitlement is not affected by whether employment has terminated or is continuing.

What does this mean for you or your business?

With the recent increase in employment rights for family friendly policies, such as flexible working, more and more businesses are managing a changing workforce, including in many instances, requests for changes in hours worked. 

Be aware that employees who change from full to part-time holiday during a holiday year may find themselves with little or no holiday left after the change because of how much holiday they have already taken at the time of the change. 

Traditionally, businesses have calculated holiday over an average of the previous 12 weeks work.  This judgment may mean that this practice is not compliant with European law, although we will need subsequent case law to decide this point.

Careful management of annual leave will ensure that your business is not overpaying staff, or providing them with annual leave they may not be entitled to.

What do you need to be doing now?

Ensure that your managers and supervisors are aware of staff entitlement should an employee change their working hours. It is always good practice to raise the point with employees at the time of the change to avoid any misunderstanding further down the line.

These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.