Did you know that 52% of UK employers make mistakes when calculating holiday pay for their staff?
Understanding how holiday pay is calculated can save your business from costly errors and potential legal issues. The rules governing holiday entitlements in the UK are complex, and with significant changes coming into effect for 2025, staying compliant is more important than ever.
Many employers struggle with different worker types, variable hours, and special circumstances that affect holiday pay calculations. Whether you manage full-time employees, part-time staff, or zero-hours workers, each category requires a specific approach to ensure accurate payment.
The 2025 regulatory updates bring both challenges and opportunities for UK businesses. These changes affect everything from the calculation methods to rolled-up holiday pay options that weren't previously available.
This comprehensive guide will walk you through the entire process of calculating holiday pay correctly. We'll cover the legal framework, entitlements for different worker types, calculation methods, special scenarios, and the new options available to employers under the 2025 rules.
Understanding the Legal Framework
The UK's holiday pay system is based on specific legal foundations that employers must understand to remain compliant. These regulations specify how holiday pay is calculated for various worker types and the amount of leave to which employees are entitled.
Working Time Regulations 1998 and EWTD
The Working Time Regulations 1998 (WTR) form the cornerstone of holiday entitlement in the UK. This legislation implemented the European Working Time Directive (EWTD) into British law, establishing baseline standards for working hours and paid leave.
The WTR applies to almost all workers, regardless of their employment status—full-time employees, part-time staff, and those on irregular hours [1]. The regulations were designed to protect workers' health and safety by preventing excessive working hours and ensuring adequate rest periods.
Key provisions of the WTR and EWTD for holiday pay purposes are:
- A limit of 48 hours worked per week, averaged over a reference period
- An entitlement to 11 consecutive hours of rest per day
- A minimum 20-minute break where the working day exceeds 6 hours
- An entitlement to paid annual leave [2]
Employers must maintain records for two years to demonstrate compliance with maximum working time limits and other relevant requirements [3].
2024 updates to holiday pay rules
Significant changes to holiday pay regulations took effect in 2024 through the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023. These updates aim to simplify calculations while ensuring fair treatment for all worker types.
Changes effective from January 2024:
- Clear definition of what constitutes 'normal remuneration' for holiday pay
- Updated rules for holiday carry-over
- Removal of COVID-19 carryover provisions [4]
Furthermore, additional changes apply to leave years beginning on or after 1 April 2024:
- Introduction of the 12.07% accrual method for irregular hours and part-year workers
- New provisions for leave accrual during maternity, family-related, or sick leave
- Option for rolled-up holiday pay for irregular hours and part-year workers [4]
The 12.07% figure derives from the statutory 5.6 weeks' leave entitlement. Since a whole working year contains 52 weeks, subtracting 5.6 weeks of leave results in 46.4 working weeks (52 - 5.6 = 46.4). The percentage is then calculated as 5.6 ÷ 46.4 × 100 = 12.07% [4].
Statutory minimum leave explained
The statutory minimum annual leave entitlement in the UK stands at 5.6 weeks per year. For full-time employees working five days weekly, this translates to 28 days of paid holiday [1]. However, this entitlement is capped at 28 days, so employees working six days per week still receive a maximum of 28 days [5].
Part-time workers are entitled to the same 5.6 weeks but receive fewer actual days, calculated pro rata based on their working pattern. For instance, someone working three days weekly would receive 16.8 days of annual leave (3 × 5.6) [5].
For workers with irregular hours or those who work only part of the year, holiday entitlement accrues based on hours worked rather than being allocated as a fixed number of days [5]. Beginning with leave years starting after 1 April 2024, these workers' holiday entitlement is calculated as 12.07% of actual hours worked in each pay period [6].
Bank holidays can be counted as part of the statutory minimum or offered as additional days off, depending on the employment contract [7]. This flexibility enables employers to tailor holiday arrangements to their specific business needs while meeting legal requirements.
Different Worker Types and Their Entitlements
Worker classifications have a significant impact on how holiday pay is calculated. The Working Time Regulations ensure that all workers receive their fair share of paid time off, although calculation methods vary depending on employment patterns.
Full-time employees
Full-time employees typically work a standard five-day week throughout the year. They're entitled to the statutory minimum of 5.6 weeks' paid holiday annually, which equates to 28 days [8]. This entitlement may include the eight bank holidays in England and Wales (nine in Scotland, ten in Northern Ireland), as specified in your employment contract [9].
The 28-day maximum applies regardless of working pattern—even if an employee works six or seven days weekly, their statutory entitlement remains capped at 28 days [9]. Nonetheless, many employers offer additional contractual holidays beyond this statutory minimum.
For full-time employees with fixed hours, calculating holiday pay is straightforward. They should receive the same pay when on holiday as they would when working [10]. Additionally, employers must include regular commission, overtime payments, and other allowances in holiday pay calculations for at least four weeks of their annual leave [10].
Part-time and term-time workers
Part-time workers enjoy the same 5.6 weeks of statutory holidays as full-time workers, albeit with fewer actual days off. This pro-rata entitlement ensures part-time staff aren't treated less favourably than their full-time colleagues [11].
To calculate a part-timer's holiday entitlement in days, multiply 5.6 by the number of days worked weekly [9]. For instance, someone working three days weekly receives 16.8 days of annual leave (3 × 5.6) [8].
For those working different hours each day, calculate an average working day by dividing weekly hours by days worked [9]. Alternatively, express holiday entitlement in hours by multiplying weekly hours by 5.6 [9].
Term-time workers present unique challenges. These employees work certain weeks yearly with scheduled non-working periods [12]. A term-time worker can be employed full-time or part-time, under permanent or temporary contracts [12]. Their entitlement depends on contract type:
- Permanent staff usually receive normal weekly pay during school holidays
- Hourly-paid supply teachers, temporary workers, and zero-hours staff typically get paid only for hours worked [12]
Irregular hours and zero-hours contracts
Someone is classified as an irregular hours worker if their contract specifies that working hours in each pay period are "wholly or mostly variable" [3]. This category typically includes zero-hours contracts, casual contracts, and bank contracts [3].
Meanwhile, part-year workers are those whose contracts require them to work only part of the year, specify periods of at least a week when they're not required to work (and aren't paid), and remain in place year-round [3].
For these worker types, holiday entitlement is calculated differently. Under rules effective from April 2024, irregular hours and part-year workers accrue holiday at 12.07% of hours worked in each pay period [3]. This percentage derives from the statutory minimum entitlement of 5.6 weeks [3].
For example, if a zero-hours worker completes 100 hours in a period, they accrue 12.07 hours of holiday entitlement [13]. The maximum holiday they can accrue annually is 28 days [3].
Holiday pay for these workers is based on average weekly earnings over the previous 52 weeks (only counting weeks where they were paid) [14]. If they haven't worked 52 weeks yet, employers should use the weeks they have worked [14].
Unlike regular employees, from April 2024, employers can use "rolled-up" holiday pay for irregular hours and part-year workers only [12]. This means adding holiday pay on top of hourly rates rather than paying it when leave is taken.
How to Calculate Holiday Pay for Each Worker Type
Calculating holiday pay accurately requires different approaches based on an employee's employment patterns. Each worker type follows specific calculation methods to ensure fair compensation during time off.
Fixed hours: daily and weekly pay
For employees with fixed working hours, holiday pay is equivalent to their regular wage. The formula is straightforward - multiply their weekly hours by their hourly rate. For instance, if an employee works 40 hours weekly at £15 per hour, their weekly wage is £600. Therefore, they receive £600 for a week's holiday [15].
This applies to both full-time and part-time employees with consistent schedules. When these workers take holidays, they should receive exactly what they would have earned had they been working [10].
For salaried employees with fixed hours and fixed monthly pay, no separate calculation is needed. They continue to receive their normal monthly salary regardless of any holidays taken during that period [2].
Variable hours: 52-week average method
Workers with fluctuating hours require a different approach. Holiday pay is determined by averaging their pay over the preceding 52 weeks [15]. Only weeks in which they worked and received payment are counted [2].
To calculate holiday pay for variable hours workers:
- Count back 52 weeks in which the employee received pay
- Add up the total pay received during these weeks
- Divide by 52 to find the average weekly pay
- Multiply by the number of weeks of holiday taken
If an employee hasn't worked for 52 paid weeks, employers should use as many paid weeks as available, going back no more than 104 weeks [2].
For monthly-paid workers with variable hours, the weekly pay must be calculated first. This involves finding their average hourly rate (monthly pay ÷ hours worked) and multiplying it by the number of hours worked each week [2].
12.07% method for casual workers
For leave years beginning on or after 1 April 2024, employers can use the 12.07% accrual method for irregular hours and part-year workers [16]. This percentage represents the proportion of holidays relative to working weeks (5.6 ÷ 46.4 × 100 = 12.07%) [16].
Under this method, workers accrue 12.07% of hours worked in each pay period as holiday entitlement. For example, someone working 25 hours a week accrues 3.02 hours of holiday (25 × 0.1207) [17].
Furthermore, from April 2024, employers can use "rolled-up" holiday pay for irregular hours and part-year workers. This involves adding holiday pay (at least 12.07% of earnings) to each payment rather than paying separately when leave is taken [7]. Employers must show this as a separate payment on payslips [7].
When employees receive a contractual holiday exceeding the statutory minimum, the percentage increase is accordingly. For example, 30 days of annual leave would equate to a 13.04% accrual rate (6 weeks ÷ 46 weeks × 100) [17].
Special Scenarios That Affect Holiday Pay
Certain employment situations require adjustments to standard holiday pay calculations. Understanding these scenarios helps ensure compliance with legal requirements and fair treatment of employees.
New starters and leavers
When employees join part-way through a leave year, they receive holiday entitlement proportional to their time with the company. For a worker on a five-day week who starts three months into the leave year, entitlement would be 21 days (28 ÷ 12 × 9 remaining months) [18].
Alternatively, calculate by actual days remaining in the year:
- Divide the days between the start date and the year-end by 365
- Multiply the result by the annual entitlement
For leavers, employers must pay for any untaken statutory holiday accrued during employment [19]. This payment "in lieu" appears in the final pay packet. Conversely, if an employee has taken more holiday than accrued, employers can deduct the excess from the employee's final wages—provided this is agreed upon in the contract [19].
Sick leave and maternity leave
Employees continue to accrue their full holiday entitlement during sick leave, regardless of duration [4]. They can:
- Use paid holiday while off sick (perhaps to receive full pay instead of statutory sick pay)
- Carry over the untaken holiday due to sickness absence [4]
Workers on long-term sick leave can carry over up to four weeks of unused holiday, which must be used within 18 months [4].
Similarly, employees on maternity leave accrue their usual holiday entitlement, bank holidays [20]. A holiday cannot be taken simultaneously with maternity leave—it must be arranged before or after [20]. Planning this early with employers is essential.
Commission, bonuses, and overtime
Following legal precedents, such as Lock v British Gas Trading Limited (2014), commission payments must be included in holiday pay calculations [21]. This applies when commission forms part of normal remuneration, as excluding it could discourage employees from taking leave [21].
Likewise, holiday pay must include overtime payments for workers who regularly receive them [22]. For most employees, this applies to at least four weeks of holiday pay, while irregular hours workers require inclusion in all 5.6 weeks [22].
The calculation typically uses a 52-week reference period (excluding unpaid weeks) to determine average earnings [23]. This ensures holiday pay accurately reflects standard working patterns, preventing financial disadvantage when taking leave.
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