EAT supports working days approach to holiday pay calculations

In East Lancashire NHS Trust v Akram, the Employment Appeal Tribunal (EAT) recently grappled with the divisor used to calculate daily holiday pay and confirmed that what truly matters is achieving equivalence—ensuring a worker on holiday is not disadvantaged compared to when they are working.

Facts of the case

Mr Akram worked for East Lancashire NHS Trust as a phlebotomist with irregular shifts. He was paid a base salary (divided into twelve equal monthly instalments), plus enhancements for unsocial hours and overtime. To calculate holiday pay, the Trust divided the basic annual salary by 12 and then by the number of calendar days in that month, while enhancements were averaged over 365 days. Mr Akram argued this method diluted his holiday pay because it incorporated days he would not have been working.

The Employment Tribunal (ET) decided that dividing the working year by calendar days was potentially unfair, preferring a working day divisor instead. However, the ET could not make a final determination on whether Mr Akram had been underpaid due to insufficient evidence about his actual earnings and hours.

The EAT decision

On appeal, the EAT dismissed the case as premature. It emphasised that in any holiday pay calculation, there is both a multiplier (eg the number of days or hours being paid) and a multiplicand (the weekly, daily, or hourly rate of pay). In this dispute, while the ET had indicated a preference for using working days to calculate daily pay, it had not finally established what the correct day rate (the multiplicand) should be. Without that, the EAT said it was impossible to determine whether there had actually been an unlawful deduction from wages.

Crucially, the EAT did not endorse a hard-and-fast rule that employers must always use working days rather than calendar days. Instead, it reminded employers and tribunals that they must apply the WTR in a way that ensures a worker receives the same pay for holiday as if they had been working. How that is achieved may vary, but the final figure must be equivalent to normal earnings over the relevant reference period (usually 52 weeks).

Working days versus calendar days—practical implications

Although the EAT confirmed that employers may use calendar days or working days (or even hours) in principle, it acknowledged that using a calendar-day approach often requires more complicated adjustments to avoid underpayment. If 365 calendar days are used as the divisor, the resulting “daily” rate of holiday pay is typically lower. To compensate, the employer might need to pay for more days of holiday to match a worker’s normal earnings for the period.

By contrast, basing the calculation on actual working days (or hours) often produces a daily or hourly rate of pay that closely matches the employee’s usual pay. As a result, the final figure—when multiplied by the days or hours of leave—more neatly reflects true earnings. Practically, it can be simpler, as the employer does not have to adjust for non-working days. While both approaches can, in theory, arrive at a lawful outcome, employers frequently find that using working days (or an hourly approach) avoids confusion and reduces the risk of underpayment.

Key takeaways for employers

One of the most important lessons from this decision is that the focus should be on ensuring the final holiday pay figure is equivalent to what the employee would have earned if they had been working. Whether employers choose to use working days, calendar days, or hours as a basis for calculation, it must be demonstrated that the resulting holiday pay accurately reflects normal earnings.

A second point to consider is the timing of appeals. The EAT made clear that appeals should not be brought before the tribunal has reached a conclusive determination on any underpayment. In Akram, the ET had decided on a potential method (the multiplier) but not the final rate (the multiplicand). Without a definitive figure for holiday pay, there was little point in appealing.

In addition, accurate and detailed evidence is essential when dealing with holiday pay disputes. The ET in this case could not fully resolve the issue due to insufficient information about the claimant’s actual pay and hours. Employers should therefore ensure that they keep comprehensive records of employees’ work patterns, including all enhancements or overtime, so that they can clearly demonstrate how holiday pay calculations match normal remuneration.

Finally, given the ongoing complexity of holiday pay law—particularly for workers who do not work fixed hours—employers should consider reviewing their calculation methods and seeking legal advice where necessary. Regular reviews help maintain compliance with the Working Time Regulations and minimise the risk of disputes arising in the first place.

Looking ahead

While the EAT dismissed this appeal, the underlying question—how best to calculate daily rates for workers with irregular hours—remains an area of active scrutiny. The guiding principle is clear: workers must not be disadvantaged by the calculation method used. Employers should keep an eye on further developments to ensure their policies and payroll processes remain robust and compliant.

For more information or advice, please contact Jessica Scott-Dye in our Employment team on 0117 314 5652, or complete the form below.