Calculating holiday pay correctly is a common challenge for UK employers. The rules have been clarified following several key court decisions and the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.
The Basic Principle
Employees should receive their normal remuneration during holiday. For workers with regular hours and pay, this is straightforward — they receive their usual weekly pay.
What Must Be Included?
Holiday pay for the statutory 4 weeks (from EU law) must include:
- Regular overtime — compulsory overtime and regular voluntary overtime that has become an established pattern
- Commission — where it forms a normal part of remuneration
- Regular bonuses — performance or results-based bonuses that are regularly received
- Allowances — travel allowances, shift premiums, and other regular payments
The additional 1.6 weeks of statutory holiday (from UK law) can be calculated at basic pay only.
Irregular Hours and Part-Year Workers
Since 1 January 2024, employers can use an accrual method for irregular hours and part-year workers:
- Holiday accrues at 12.07% of actual hours worked in each pay period
- Rolled-up holiday pay is now lawful — an additional 12.07% added to each pay packet in lieu of paid time off
The 52-Week Reference Period
For workers whose pay varies, use a 52-week reference period to calculate a week's pay. Only count weeks where the worker was paid; skip weeks with no pay and look back further until you have 52 paid weeks.
Our payroll team ensures your holiday pay calculations are compliant. Get expert help.