The image of the average worker has gradually changed over decades of innovation and progress. While full-time salaried employees with a consistent 9-to-5 position are still common, more positions are being added that find workers in unique schedules and circumstances.

Even with this change in worker norms, what has not changed is what workers are entitled to for fair treatment. One of the most significant entitlements that must be considered is paid time off for holidays. For all the efforts employees give to their organisation, it is crucial to offer them rest. Fortunately, regulations have guaranteed that anyone deemed a worker or employee (essentially everyone but the self-employed) is entitled to 5.6 weeks of paid holiday time per year.

These regulations have been in place for a long time to ensure that workers are granted necessary time-off, but recently they have been altered to suit a new workforce better.

Specifically, how many weeks an employer needs to reference for average pay and how far back they can go to look have been changed with these new regulations as of 6 April 2020. This may be a tricky concept for employers used to the previous system. For assistance with these new guidelines, we’ll go through the new rules and how you should apply them.

### How has holiday pay changed?

These new regulations guide employers when calculating holiday pay for workers, especially those without fixed hours or pay. Many employers have had to adjust to a labour market that changed with pandemic conditions, so accounting for employees in more non-traditional roles and schedules is imperative.

These new regulations change two key things about calculating holiday pay:

- How many weeks employers should pull from when calculating average pay
- How far back employers should look to account for these weeks

Regarding how many weeks should determine average pay, these new regulations state that employers should gather 52 weeks of pay data to determine the average salary for holiday time off. This means employers should only account for weeks where the employee received payment and disregard weeks where they did not receive an income. Previously, only 12 weeks were needed to calculate average pay, which is a significant change.

With this increase in the number of weeks needed for reference, many employers may struggle to find 52 weeks of pay data, especially for workers with non-fixed hours. Because of this, the second new addition in the regulations stipulates that employers can only go back two years (or 104 weeks). Previously this number was uncapped, so these new regulations help employers and employees.

Now you may have questions about how to handle these new calculations and exceptions to these rules, and from here, we will proceed with some examples and some edge-cases that may occur with these regulations.

## 1. Breaking Down the New Holiday Pay Formula for workers on variable hours or casual workers on fixed rates

According to HMRC, the rule is straightforward. You simply divide your employee's pay data for the last 52 weeks of income by 52. However, in practice, it’s not that simple. For example, an employee who only works on Fridays, Saturdays, and Sundays decides to take her Friday and Sunday. It’s not an entire week of holiday. Then, how much should you pay her?

In fact, in most cases, you must go beyond HMRC’s explanations and break them down the following way to cover specific issues.

#### Step 1: Finding the average weekly income

Gather your employee's pay data for the last 52 weeks of income. Take this total amount of income and divide it by 52. This will give you the average weekly pay for the last 52 weeks.

**Equation: **Total Income/ 52 = Average weekly Income for the last 52 weeks of work

From here, you would use this average weekly income as the amount you would pay your employee for taking a 1-week holiday from work. As discussed above, many holidays won’t last one exact week, so there are a few more steps to determine how much you need to pay per day of leave.

#### Step 2: Finding the average number of daily working hours

Now, you will want to find the average daily working hours to determine how many hours a working day for your worker on variable hours or zero hours. This will help you find the number of hours you need to pay per holiday day.

**Equation: **Total number of hours worked/ Total number of working days = Number of hours per day to account for.

#### Step 3: Finding the holiday pay

You will then multiply the employee’s hourly rate by the number of hours per day to find the amount you owe the employee for holiday pay.

**Equation: **Hourly rate x Number of days taken x Number of hours per working day = Holiday pay

Laying out this formula this way should have provided some help, but numbers may be the best way to demonstrate the new rules. So let’s go over some examples to see the maths in action.

### A 52-Week Average Holiday Pay Scenario

So let’s use an example of a cleaning person who will come and clean your office at certain hours on particular days but isn’t a salaried employee. They are still entitled to holiday time off and pay, but you will need to use these new regulations to determine their compensation.

First, let’s make some assumptions. We have scoured our pay data and have found 52 weeks of data within the last 2 years. We have found that the total income made was £30,000; now, let’s figure out how much holiday pay this worker would be owed if they requested a week off.

So, with the total income provided, we have Step 1 out of the way.

#### Step 1: Finding the average weekly income

Let’s move on to Step 2 and find the average weekly income for the last 52 weeks:

£30,000 (Total Income) / 52 (Number of weeks) = £576.92 (Average Weekly Income)

With 1 week off requested, £576.92 would be the amount you owe your employee for their holiday pay.

#### Step 2: Finding the average number of daily working hours

Next, let’s figure out what their average daily hours will be.

1,000 (Number of hours worked during the last 52 weeks) / 150 (Number of working days in the previous 52 weeks) = 6.6 (Average number of hours per working day)

So, we have determined that for every day this employee requests off, you should pay for 6.6 hours of work.

#### Step 3: Finding the holiday pay

Finally, let’s calculate their holiday pay for 3 days off, assuming the employee’s hourly rate is £30.

30 (hourly rate) x 3 (days off taken) x 6.6 (average number of hours per working day) = £594

Notice that if we were to calculate the average number of working days per week for this worker, we would find 150 (total number of working days during the last 52 weeks) /52 = 2.88 days per week. This makes it very unintuitive and complicated to calculate the holiday pay of this employee.

### What If You Can’t Reference 52 Weeks?

Now you may be wondering what will happen when you don’t have 52 weeks of pay data to work with. Well, in that case, these new regulations state that you should use every single week of pay data you do have up to the 104-week timeline we mentioned before.

So, let’s try this process again, but with less than 52 weeks' pay as an example during the 104-week timeline.

In this scenario, we will assume the employee has 24 weeks of pay data and has made a total income of £15000.

£15000 (Total Income) /24 (Total Weeks) = £625 (Average Weekly Pay)

We will assume this employee works 500 hours across 70 days during these 24 weeks.

500 (Total hours) / 70 (Total days) = 7.14 (Average hours worked per day)

We’ll say this employee wants to take 2 days off.

30 (Hourly rate from the previous example) x 2 (Days off taken) x 7.14 (Average number of hours per working day) = £428.4

Now, as you can see, the numbers can vary depending on how many weeks of work you can reference for the same employee.

## 2. Breaking Down the New Holiday Pay Formula for workers on variable hours or casual workers on variable rates

Sometimes, employers need to pay their workers at a different rate. For example, a cleaner may earn £10 per hour for cleaning an office on Monday but £12 per hour for cleaning a mill with slighter more risk for their health and safety.

Notice that the below calculation is the long run, working for all possible scenarios.

#### Step 1: Finding the average weekly income

Gather your employee's pay data for the last 52 weeks of income. Then, take this total amount of income and divide it by 52. This will give you the average weekly pay for the last 52 weeks.

**Equation: **Total Income/ 52 = Average weekly Income for the last 52 weeks of work

From here, you would use this average weekly income as the amount you would pay your employee for taking a 1-week holiday from work. As discussed above, many holidays won’t last one exact week, so there are a few more steps to determine how much you need to pay per day of leave.

#### Step 2: Finding the average number of hours worked per week

Now, you will want to find the average weekly working hours to determine how many hours, on average, the employee worked per week on variable hours or zero hours.

**Equation: **Total number of hours worked during the last 52 weeks/ Total number of working days during the previous 52 weeks = Average number of hours worked per week

#### Step 3: Finding the average number of days per week

Moreover, you need to find the average number of days worked per week for the last 52 weeks to find how many hours is a working day for your employee. This will be your reference to calculate how many hours of holiday days your employee has taken.

**Equation: **Number of days worked /52 = Average number of days worked per week

#### Step 4: Finding the average number of hours worked per day

From steps 3 and 4, you can deduce the average number of hours worked per day by your employee.

**Equation: **Average number of hours worked per week /Average number of days worked per week = Average number of hours per day

#### Step 5: Finding your employee’s average hourly rate

You will then divide the employee’s average weekly income by the average number of hours worked per week to find the average hourly pay of your employee.

**Equation: **Average weekly Income for the last 52 weeks of work / Average number of hours worked per week for the last 52 weeks of work = Average hourly rate

#### Step 6: Finding your employee holiday pay

This step is the most intuitive as it just multiplies the hourly rate by the number of hours worked per day to get an average daily pay. So, if your employee takes more than one or half a day, just multiply this by their average daily income.

**Equation: **Average hourly rate x Average number of hours per day x number of days taken

Laying out this formula this way should have provided some help, but numbers may be the best way to demonstrate the new rules. So let’s go over some examples to see the maths in action.