Work out holiday entitlement and pay
Rolled-up holiday pay and the 52-week average for irregular hours workers, per the statutory rules.
Regularly worked overtime must be included in the first 4 weeks of a worker's holiday pay, a rule settled by a run of court decisions and now written into UK law for leave years beginning on or after 1 April 2024 [1]. An employer that pays only basic salary during holiday, ignoring the overtime a worker routinely earns, is underpaying that holiday and risks a claim for unlawful deduction [2].
The rule is not intuitive. Many employers assume holiday pay simply mirrors the contractual salary, so overtime, being extra, sits outside it. That assumption is wrong for any overtime worked with enough regularity to count as normal pay, and the distinction between the two tiers of statutory holiday makes the position more subtle still.
This article explains the two tiers of holiday pay, the three kinds of overtime, the test for when overtime must be included, how it feeds the 52-week average, and the errors that most often lead to underpaid holiday.
Key takeaways
- The first 4 weeks of statutory holiday must be paid at normal pay, which includes regularly worked overtime, commission and role-based allowances.
- The remaining 1.6 weeks may be paid at basic pay, though many employers pay all 5.6 weeks at the normal rate for simplicity.
- Guaranteed and non-guaranteed overtime that forms a regular pattern must be included; purely occasional overtime need not be.
- Voluntary overtime must be included where it is regular enough to count as normal pay.
- For variable pay, overtime feeds into the 52-week average used to work out a week's holiday pay.
The two tiers of statutory holiday pay
UK statutory holiday of 5.6 weeks is made up of two separate allocations, and they carry different pay rules. The distinction comes from the Working Time Regulations 1998, which split the entitlement into 4 weeks under regulation 13 and 1.6 weeks under regulation 13A [3].
| Portion | Regulation | Origin | Pay rule |
|---|---|---|---|
| 4 weeks | Reg 13 | EU-derived | Must be paid at normal remuneration |
| 1.6 weeks | Reg 13A | UK addition | May be paid at basic pay only |
The 4 weeks of regulation 13 leave must be paid at the worker's normal rate, which can include regular overtime, regular bonuses and commission [4]. The additional 1.6 weeks of regulation 13A leave may be paid at basic pay, meaning basic remuneration without the overtime and commission elements [1].
Why many employers pay all 5.6 weeks the same
The two-tier rule creates a practical headache. Splitting a worker's leave into 4 weeks at one rate and 1.6 weeks at another, and tracking which portion a given day of leave draws from, is administratively heavy. For that reason many employers choose to pay the full 5.6 weeks at the normal, overtime-inclusive rate [4]. Paying the higher rate across all leave removes the need to distinguish the tiers and eliminates the risk of underpaying the regulation 13 portion. Employers running this through UK payroll software often set the normal rate across the whole entitlement for exactly this reason.
The three kinds of overtime
Overtime is not a single thing, and the label matters for holiday pay. There are three broad types, defined by whether the employer must offer the work and whether the worker must accept it [5].
| Type | Employer must offer | Worker must accept |
|---|---|---|
| Guaranteed overtime | Yes | Yes |
| Non-guaranteed overtime | No | Yes, if offered |
| Voluntary overtime | No | No |
Guaranteed overtime is written into the contract: the employer is obliged to offer it and the worker is obliged to work it [5]. Non-guaranteed overtime is not something the employer must offer, but once offered the worker is contractually required to do it. Voluntary overtime is optional on both sides: the employer offers it and the worker can decline.
The old assumption was that only guaranteed overtime, being contractual, counted towards holiday pay. That assumption has been overturned. All three types can now count, and what decides inclusion is not the label but the regularity [2].
The test: is the overtime regular enough to be normal pay?
The governing principle is that holiday pay must reflect normal remuneration, so that a worker is not financially worse off for taking leave [4]. The question for any overtime is therefore whether it forms part of the worker's normal pay.
All types of overtime that a worker usually works, including voluntary overtime, must be included in holiday pay. Overtime worked only occasionally does not have to be included [2]. The dividing line is regularity: overtime paid with enough consistency over the preceding period becomes part of normal pay, while a one-off burst does not.
This position was built through a series of court decisions before it was codified. The 2014 Employment Appeal Tribunal ruling in Bear Scotland v Fulton established that regular non-guaranteed overtime must be included in holiday pay. Later cases, including Dudley Metropolitan Borough Council v Willetts in 2017 and East of England Ambulance Service v Flowers in 2019, extended the principle to purely voluntary overtime where it is sufficiently regular. The 2024 reforms then wrote the normal-remuneration principle into the regulations [1].
What else counts as normal pay
Overtime is not the only element that must be included. Normal pay for the 4 weeks of regulation 13 leave also captures payments intrinsically linked to the work, results-based commission, and allowances tied to length of service, seniority or professional qualifications [1]. Regular bonuses that a worker normally receives can also form part of normal pay, though genuinely discretionary or one-off bonuses usually do not [6]. Accountants advising multiple employers on this, typically through a payroll bureau platform, apply the same regularity test across every pay element, not just overtime.
How overtime feeds the 52-week average
For a worker whose pay varies, holiday pay is worked out using an average of the previous 52 paid weeks. Overtime earnings sit inside that average automatically, because the average is built from actual pay received in each of those weeks [6]. A worker who regularly earns overtime will therefore have a higher average, and a higher holiday pay figure, than the same worker on basic pay alone.
The mechanics of the reference period are precise. Only weeks in which the worker was actually paid count towards the 52, weeks with no pay are skipped, and the employer looks back up to 104 weeks to find enough paid weeks [6]. The full method is set out in the guide to the 52-week holiday pay average. Because overtime is captured week by week, a period of heavy overtime lifts the average for the following year, and a quiet period lowers it.
| Worker profile | Effect on 52-week average |
|---|---|
| Regular weekly overtime | Overtime raises the weekly average and the holiday pay |
| Occasional one-off overtime | Included in the weeks it was paid, small effect overall |
| No overtime | Average reflects basic pay only |
For a worker on genuinely fixed hours and fixed pay, no 52-week average is needed, and holiday pay is simply a normal week's pay. The averaging only applies where pay varies, which is precisely where overtime makes the biggest difference [6].
A worked example with regular overtime
Figures make the effect concrete. Take a worker on a basic 35-hour week at £13 an hour, so basic weekly pay is £455. Over the previous 52 weeks the worker also earned overtime in most weeks, adding £4,160 across the year, an average of £80 a week. The 52-week average therefore reflects both figures [6].
| Pay element | Weekly amount |
|---|---|
| Basic pay (35 hours at £13) | £455.00 |
| Average regular overtime | £80.00 |
| Holiday pay per week (normal rate) | £535.00 |
If the employer paid only the basic £455 during a week of leave, the worker would be £80 worse off for that week than for a normal working week, which is exactly the outcome the normal-remuneration rule prohibits [4]. Across the 4 weeks of regulation 13 leave, that underpayment would total £320 for a single worker in one year [1].
The same logic applies to workers with no fixed hours at all, such as those on zero-hours contracts, where overtime and variable shifts are simply part of the pay that feeds the average [6]. For these workers there is no basic salary to fall back on, so the average is the only correct measure of a week's holiday pay.
Common mistakes that lead to underpaid holiday
Overtime is one of the most frequent sources of holiday pay error, and the mistakes tend to repeat across businesses. Recognising them is the quickest route to compliance.
- Paying basic pay only during leave.** The most common error is treating holiday pay as the contractual salary and ignoring regular overtime, which underpays the regulation 13 leave [4].
- Excluding voluntary overtime.** Assuming voluntary overtime never counts is wrong where the overtime is regular [2].
- Using the wrong reference period.** Counting unpaid weeks, or failing to look back far enough, distorts the average [6].
- Applying the basic rate to all 5.6 weeks.** Paying the lower basic rate across the whole entitlement underpays the 4 weeks that must carry normal pay [1].
The employer NI angle
Overtime does not only affect holiday pay, it also feeds the employer cost of every hour. Employer National Insurance is charged at 15% on earnings above the Secondary Threshold of £5,000 a year for the 2026-27 tax year [9]. Overtime that lifts holiday pay therefore also lifts the employer NI due on that pay, so the true cost of regular overtime runs slightly ahead of the headline rate. Larger employers modelling this across a workforce often calculate it inside an HMRC-recognised payroll engine rather than estimating it by hand.
Work out holiday pay including overtime
An employer checking a holiday pay figure for a worker who earns regular overtime can size it with the Moonworkers holiday pay calculator, which applies the 52-week average and normal-remuneration rules to variable pay.
A 12.07% uplift on total pay, added to every payslip instead of paying when leave is taken.
Annual entitlement: 5.6 weeks (12.07%) · change
Statutory minimum is 5.6 weeks. Enter more if the contract gives extra leave.
Rolled-up holiday pay
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Moonworkers tracks hours, accrual and holiday pay automatically for every casual worker, itemised on each payslip and reported to HMRC in real time.
Conclusion
Overtime and holiday pay are linked by a single principle: a worker should be no worse off financially for taking leave than for working. That principle pulls regular overtime, whether guaranteed, non-guaranteed or voluntary, into the first 4 weeks of holiday pay, and lets it flow through the 52-week average for anyone on variable pay. The label on the overtime matters far less than how regularly it is worked.
The direction of travel is towards holiday pay that reflects real earnings rather than the bare contractual salary, and towards payroll systems that calculate it automatically from the pay already recorded. As overtime, commission and allowances feed the same running average that drives the holiday figure, the calculation moves from an annual reconciliation exercise into a continuous part of the payrun, leaving less room for the underpayments that overtime has historically caused.
Frequently asked questions
Does overtime have to be included in holiday pay?
Regularly worked overtime must be included in the first 4 weeks of statutory holiday pay, because that leave must be paid at the worker's normal rate. This applies to guaranteed, non-guaranteed and voluntary overtime where it is worked with enough regularity to count as normal pay. Overtime worked only occasionally does not have to be included.
Is voluntary overtime included in holiday pay?
Yes, where it is regular. Court decisions established that voluntary overtime must be included in holiday pay if it is worked regularly enough to form part of the worker's normal pay. Purely occasional voluntary overtime, worked rarely and without a pattern, does not have to be included.
What is the difference between the 4 weeks and 1.6 weeks of holiday?
Statutory holiday of 5.6 weeks is split into 4 weeks derived from EU law and 1.6 weeks added by UK law. The 4 weeks must be paid at normal pay, including regular overtime and commission, while the 1.6 weeks may be paid at basic pay. Many employers pay all 5.6 weeks at the normal rate to keep the calculation simple.
How does overtime affect the 52-week holiday pay average?
For workers with variable pay, holiday pay is based on an average of the previous 52 paid weeks. Overtime earnings are captured within that average automatically, so a worker who regularly works overtime has a higher average and a higher holiday pay figure. Only weeks in which the worker was actually paid count towards the 52.
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