Holiday Pay Calculation Example

Calculate your holiday pay entitlement based on your working pattern and employment type

Comprehensive Guide to Holiday Pay Calculation in the UK (2024)

Understanding how holiday pay is calculated is essential for both employers and employees to ensure fair compensation and compliance with UK employment law. This guide explains the legal requirements, calculation methods, and common scenarios for holiday pay entitlement.

1. Legal Framework for Holiday Pay in the UK

The primary legislation governing holiday pay in the UK is the Working Time Regulations 1998, which implements the EU Working Time Directive. Key points include:

• Minimum entitlement: 5.6 weeks (28 days for full-time workers) of paid annual leave per year
• Inclusion of bank holidays: Employers can choose whether to include the 8 UK bank holidays within the 28-day entitlement or offer them as additional leave
• Payment during leave: Workers must receive their normal pay during holiday periods
• Accrual: Holiday entitlement builds up (accrues) during maternity, paternity, and sick leave
• Carry-over: Up to 4 weeks of unused leave can be carried over for 18 months in certain circumstances

Official Government Guidance:

GOV.UK: Holiday Entitlement Rights

2. How Holiday Pay is Calculated

The calculation method depends on your working pattern and how you’re paid. Here are the main approaches:

2.1 For Workers with Fixed Hours and Pay

If you work the same hours each week and receive the same pay, your holiday pay is calculated based on your normal weekly pay. The standard method is:

1. Determine your weekly pay (before tax and other deductions)
2. Divide by 5 to get your daily pay rate
3. Multiply by the number of holiday days you’re taking

Example: If you earn £500 per week and take 5 days holiday, your holiday pay would be £500 (1 week’s pay).

2.2 For Workers with Variable Hours or Pay

For workers without normal working hours (like zero-hours contracts), holiday pay is calculated based on average pay over the previous 52 weeks (or however long you’ve been employed if less than 52 weeks).

The calculation is:

1. Add up all pay received in the last 52 weeks
2. Divide by 52 to get the average weekly pay
3. Divide by 5 to get the daily pay rate
4. Multiply by the number of holiday days

Important: Weeks where no pay was received are counted as £0 in this calculation, which can significantly reduce the average for workers with irregular hours.

2.3 For Shift Workers

Shift workers should receive holiday pay based on their average pay over a representative period (usually 12 weeks). This should include:

• Basic pay
• Shift allowances
• Regular overtime (if it’s part of your normal working pattern)
• Commission (if it’s directly linked to your work)

3. What Should Be Included in Holiday Pay?

A landmark legal case (Williams and others v British Airways plc) established that holiday pay should reflect “normal remuneration”. This means it should include:

Payment Type	Should Be Included?	Notes
Basic salary/wages	✅ Yes	Always included in holiday pay calculations
Guaranteed overtime	✅ Yes	If overtime is compulsory and regular
Non-guaranteed overtime	✅ Yes	If regularly worked, even if not compulsory
Voluntary overtime	✅ Sometimes	If worked with sufficient regularity
Shift allowances	✅ Yes	Should be included if regularly received
Commission	✅ Yes	If intrinsically linked to work tasks
Bonuses	❌ No	One-off or discretionary bonuses excluded
Expenses	❌ No	Reimbursements not considered pay

4. Common Holiday Pay Scenarios

4.1 Part-Time Workers

Part-time workers are entitled to the same holiday entitlement as full-time workers on a pro-rata basis. The calculation is:

(Number of days worked per week ÷ 5) × 28 = Annual holiday entitlement

Example: A worker who works 3 days per week would be entitled to (3 ÷ 5) × 28 = 16.8 days holiday per year.

4.2 Zero-Hours Contract Workers

Workers on zero-hours contracts accrue holiday pay at a rate of 12.07% of hours worked. This is calculated as:

(5.6 weeks ÷ 46.4 working weeks) × 100 = 12.07%

Example: If you work 20 hours in a week, you would accrue 20 × 12.07% = 2.414 hours of holiday.

4.3 Agency Workers

Agency workers are entitled to the same holiday rights as permanent employees after 12 weeks in the same role. Their holiday pay is typically calculated as 12.07% of their pay and added to their hourly rate (“rolled-up holiday pay”), though this method is being phased out for permanent arrangements.

4.4 Workers Leaving Their Job

When employment ends, workers are entitled to pay for any untaken holiday. This is calculated based on their final pay rate. Conversely, if a worker has taken more holiday than they’ve accrued, the employer can deduct the equivalent from their final pay (though this should be clearly stated in the contract).

5. Common Holiday Pay Mistakes to Avoid

Both employers and employees should be aware of these common pitfalls:

• Excluding regular overtime: Failing to include regular overtime payments in holiday pay calculations can lead to underpayment claims
• Using basic pay only: Holiday pay should reflect normal remuneration, not just basic salary
• Incorrect pro-rata calculations: Part-time workers should receive holiday entitlement proportional to their hours
• Ignoring the 12-week reference period: For variable pay, using too short a period can distort calculations
• Rolled-up holiday pay: While common for casual workers, this practice is generally unlawful for permanent employees
• Failing to pay for accrued holiday on termination: Workers must receive payment for untaken holiday when they leave

6. Recent Changes and Future Developments

The calculation of holiday pay has evolved significantly in recent years due to several important legal cases:

• 2014: Williams v British Airways established that holiday pay should include commission
• 2014: Lock v British Gas confirmed that results-based commission must be included
• 2016: British Gas v Lock upheld the previous ruling on appeal
• 2019: Flowers v East of England Ambulance Trust ruled that voluntary overtime should be included if sufficiently regular
• 2020: Harper Trust v Brazel clarified holiday pay calculation for term-time workers

In 2020, the UK government introduced new regulations to clarify holiday pay calculations, particularly for workers with irregular hours. The Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018 came into force on 6 April 2020, extending the reference period for calculating holiday pay from 12 weeks to 52 weeks.

Academic Research:

ILO: Working Time and Holiday Entitlements (International Labour Organization)

7. How to Calculate Holiday Pay: Step-by-Step Examples

7.1 Example 1: Full-Time Worker with Fixed Pay

Scenario: Sarah works 37.5 hours per week at £12 per hour. She has 28 days holiday entitlement including bank holidays.

Calculation:

1. Weekly pay: 37.5 hours × £12 = £450
2. Daily pay rate: £450 ÷ 5 = £90
3. Total holiday pay value: £90 × 28 = £2,520 per year
4. If Sarah takes 5 days holiday: £90 × 5 = £450 holiday pay

7.2 Example 2: Part-Time Worker with Variable Hours

Scenario: James works 20 hours per week on average at £10 per hour. He has worked for 40 weeks this year.

Calculation:

1. Total hours worked: 20 × 40 = 800 hours
2. Total pay: 800 × £10 = £8,000
3. Average weekly pay: £8,000 ÷ 40 = £200
4. Holiday entitlement: (20 ÷ 37.5) × 28 = 14.93 days (rounded to 15 days)
5. Daily pay rate: £200 ÷ 5 = £40
6. Total holiday pay value: £40 × 15 = £600

7.3 Example 3: Zero-Hours Contract Worker

Scenario: Emma has worked 1,200 hours over the past year at £9 per hour.

Calculation:

1. Total holiday accrued: 1,200 × 12.07% = 144.84 hours
2. Holiday pay value: 144.84 × £9 = £1,303.56
3. If Emma takes 5 days (40 hours) holiday: 40 × £9 = £360 holiday pay

8. Holiday Pay and Different Types of Leave

8.1 Maternity, Paternity, and Adoption Leave

Holiday continues to accrue during:

• Ordinary Maternity Leave (OML) – first 26 weeks
• Additional Maternity Leave (AML) – next 26 weeks
• Ordinary and Additional Paternity Leave
• Ordinary and Additional Adoption Leave
• Shared Parental Leave

Workers can choose to take holiday before, during (in some cases), or after their family-related leave, but cannot be forced to take holiday during these periods.

8.2 Sick Leave

Holiday continues to accrue during sick leave. Workers can:

• Take holiday while on sick leave (and receive holiday pay instead of sick pay)
• Save their holiday to take at another time
• In some cases, carry over unused holiday to the next leave year

Important: The Plumb v Duncan Print Group case established that workers on long-term sick leave can carry over their 4 weeks’ EU-derived leave (not the additional 1.6 weeks UK leave) for up to 18 months.

9. Holiday Pay for Different Employment Statuses

Employment Type	Holiday Entitlement	Calculation Method	Key Considerations
Full-time employee	28 days (5.6 weeks)	Based on normal weekly pay	Bank holidays may be included or additional
Part-time employee	Pro-rata of 28 days	Based on normal weekly pay	Must not be treated less favourably than full-time
Zero-hours worker	12.07% of hours worked	Average pay over 52 weeks	Often paid as rolled-up holiday pay
Agency worker	Same as permanent staff after 12 weeks	Average pay over representative period	May receive rolled-up holiday pay
Casual worker	12.07% of hours worked	Average pay over 52 weeks	Often paid as rolled-up holiday pay
Freelancer/self-employed	Not entitled	N/A	Must make own provisions for time off

10. What to Do If You’re Not Receiving Correct Holiday Pay

If you believe you’re not receiving the correct holiday pay:

1. Check your contract: Review your employment contract and company holiday policy
2. Gather evidence: Collect payslips and records of hours worked
3. Raise it informally: Speak to your line manager or HR department
4. Make a formal grievance: If informal resolution fails, follow your company’s grievance procedure
5. Contact ACAS: The Advisory, Conciliation and Arbitration Service can provide free advice (0300 123 1100)
6. Consider legal action: You may be able to make a claim to an employment tribunal

Time limits: You normally have 3 months minus one day from the last incorrect payment to make a claim to an employment tribunal.

Free Advice Service:

ACAS: Holiday Pay Advice

11. Holiday Pay and Tax

Holiday pay is subject to the same tax and National Insurance contributions as normal pay. Key points:

• Holiday pay is treated as earnings for tax purposes
• It’s subject to PAYE income tax and Class 1 National Insurance
• Rolled-up holiday pay must be clearly shown on payslips
• Payments for untaken holiday on termination are taxable

Employers must provide itemised payslips showing holiday pay separately from other payments.

12. International Comparisons

The UK’s holiday entitlement is relatively generous compared to some countries but less than others:

Country	Minimum Annual Leave (days)	Bank Holidays	Total Minimum	Notes
United Kingdom	28	8 (included)	28	Can be more generous in practice
France	25	11	36	5 weeks minimum by law
Germany	20	9-13	29-33	Varies by state
Spain	30	12-14	42-44	Includes local festivals
United States	0	10	10	No federal requirement for paid leave
Australia	20	8-12	28-32	Varies by state
Japan	10	16	26	Minimum increases with service

13. Future Trends in Holiday Pay

• Four-day work week: Trials of 4-day weeks may lead to pro-rata adjustments in holiday entitlement
• Gig economy regulations: Increased scrutiny of holiday pay for gig workers (e.g., Uber, Deliveroo drivers)
• Mental health considerations: Potential for additional “wellbeing leave” beyond standard holiday entitlement
• Flexible holiday policies: Some companies offering unlimited holiday with performance-based guidelines
• Brexit impact: Potential divergence from EU working time directives
• Automation tracking: Increased use of HR software to accurately track and calculate holiday pay

14. Frequently Asked Questions

14.1 Can my employer refuse my holiday request?

Yes, but only for legitimate business reasons. They should:

• Have a clear holiday policy
• Give as much notice as the requested holiday period (e.g., 2 weeks’ notice for 2 weeks’ holiday)
• Not refuse without good reason (e.g., staffing requirements)
• Allow you to take holiday at another time

14.2 Do I get paid for bank holidays if I don’t work them?

This depends on your contract:

• If bank holidays are included in your 28-day entitlement, you’ll need to use a day’s holiday
• If they’re additional, you’ll get the day off with pay
• Part-time workers should get pro-rata bank holiday entitlement

14.3 Can I be paid instead of taking holiday?

Generally no, except:

• When your employment ends (you must be paid for untaken holiday)
• For the additional 1.6 weeks UK leave (not the 4 weeks EU leave)
• Some contracts may allow “selling” holiday days, but this is at the employer’s discretion

14.4 How is holiday pay calculated if I get tips?

Tips and gratuities are not normally included in holiday pay calculations unless:

• They’re paid through payroll (and subject to tax/NI)
• They’re part of your contractual pay
• They’re regularly received as part of your normal remuneration

14.5 What happens to my holiday if I’m made redundant?

If you’re made redundant, you’re entitled to:

• Payment for any untaken holiday in the current leave year
• Payment for any holiday carried over from previous years (if allowed by your contract)
• This payment should be at your normal rate of pay

15. Conclusion and Key Takeaways

Understanding holiday pay calculations is crucial for ensuring you receive your full entitlement. Here are the key points to remember:

• Minimum entitlement: 5.6 weeks (28 days) paid holiday per year
• Calculation basis: Should reflect your normal pay, including regular overtime and commissions
• Reference period: For variable pay, use the last 52 weeks (or length of employment if shorter)
• Part-time workers: Entitled to pro-rata holiday based on their hours
• Zero-hours workers: Accrue holiday at 12.07% of hours worked
• Termination: Must be paid for untaken holiday when leaving a job
• Bank holidays: Can be included in or additional to your entitlement – check your contract
• Disputes: Keep records and seek advice if you believe you’re being underpaid

Both employers and employees should regularly review holiday pay calculations to ensure compliance with the law and fair treatment. If in doubt, seek advice from ACAS or a qualified employment law specialist.

Remember that holiday pay is not just a legal requirement – it’s an important part of work-life balance that allows workers to rest, recharge, and return to work more productive and engaged.