Holiday Pay & Entitlement: Employers’ Guide

Entitlement to paid time off work is a fundamental workplace right in the UK. How much pay and time off work someone is entitled to will depend on several factors.  As such, this places an obligation on employers to ensure they are calculating holiday pay and entitlement correctly, or risk unwanted complaints and disputes with their workforce.

In this guide for employers, managers and HR personnel, we explain the current rules on how to calculate holiday pay and annual leave entitlements.

 

Section A: Holiday Pay Rules

 

Almost all people classed as “workers” are legally entitled to receive a week’s pay for each week of statutory leave that they take.

Revised rules under the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 took effect for holiday periods from 1 April 2024, and were designed to simplify annual leave and holiday pay calculations. Under the amended Working Time Regulations 1998, those working fixed hours over a 5-day week are entitled to a minimum of 28 days’ paid annual leave, equivalent to 5.6 weeks each leave year. This statutory minimum comprises a 4-week entitlement, as previously derived under EU law, plus an additional 1.6 weeks’ entitlement under domestic law to reflect the number of public holidays in England and Wales.

The period of 5.6 weeks’ paid holiday a year is commonly referred to as statutory leave entitlement or annual leave.

While 5.6 weeks’ paid holiday is the statutory minimum an eligible worker is entitled to take on an annual basis, an employer can offer more under the terms of an individual’s contract of employment. This is called contractual leave entitlement.

Part-time workers are entitled to the pro-rata equivalent of 5.6 weeks’ paid holiday, and agency workers are entitled to the same holiday pay as permanent employees doing the same job.

Workers with irregular hours and zero-hour contract workers are also entitled to 5.6 weeks’ paid holiday per year, accrued based on hours worked, with holiday pay calculated based on their average weekly earnings over the previous 52 weeks.

 

Section B: Pro Rata Holiday Entitlement

 

When it comes to pro rata paid holiday entitlement, this often applies when a new recruit starts their job role part way through the annual leave year, where they will only be entitled to the remaining amount of their total leave for that year on a pro rata basis. Conversely, the same method applies if an employee leaves an organisation part-way through the year and may be entitled to be paid for unused, accrued holiday (or owe their employer where they have used more than they have accrued).

Organisations can set their own leave year, such as running from 1 January to 31 December, where statutory leave must usually be taken during this timeframe.

Pro rata paid holiday entitlement can also refer to where an individual is working part-time hours. Part-time workers are still entitled to at least 5.6 weeks’ annual leave, but again on a pro rata basis, where this will amount to fewer paid days’ leave than their full-time counterpart. For example, if someone works 3 days a week, they must get at least 16.8 days’ leave a year (3 × 5.6), although the employer can choose to round this up. Equally, if an employer gives full-time employees more statutory annual leave by way of contractual leave entitlement, then part-time employees must also get the same pro rata.

 

Section C: How to Calculate Holiday Entitlement

 

When calculating the amount of annual leave entitlement a worker can take, annual leave begins to accrue as soon as a worker starts their job, without any qualifying service requirement. However, an employer can often use either a “leave year” or an “accrual system” to work out how much leave workers should get during the first year.

Under the accrual system, a worker will receive one-twelfth of their paid annual leave entitlement in each month. For example, for the full-time employee working fixed hours over a 5-day week, after month 3 in their new job role, they will be entitled to 7 days’ paid leave or a quarter of their total annual leave (28 ÷ 12 × 3). Annual leave for those working regular hours will therefore continue to be 1/12th of the statutory entitlement for each month worked and then pro-rated thereafter, although employers can provide a more generous contractual entitlement, including giving workers a greater entitlement up front.

Under the revised rules brought in in April 2024, for those working irregular hours, such as zero-hours workers, or for part-year workers, employers will be permitted to calculate accrued annual leave entitlement as 12.07% of the hours worked, not only for the first year, but beyond.

The figure 12.07% is the statutory annual leave entitlement of 5.6 weeks expressed as a percentage of the number of working weeks in a year of 46.4 weeks. This means that paid leave will accrue from day one on the last day of each pay period at the rate of 12.07% of the total hours worked during that period, subject to a maximum of 28 days per year. For example, where a worker has undertaken 30 hours in a week, they would accrue 3.6 hours leave for that week (12.07% of 30). Further, under the amended Regulations, where the amount of annual leave that has accrued includes a fraction of an hour, the fraction is to be treated as zero if it is less than 30 minutes and as one hour if it is 30 minutes or more.

Under new statutory definitions set out in the Regulations, a worker is an irregular hours worker in relation to a leave year if the number of paid hours that they will work in each pay period during the term of their contract in that year is wholly or mostly variable. Part-year (term-time) workers are defined as someone who is required to work only part of the leave year where there are periods within that year, during the term of the contract, of at least a week which they are not required to work and for which they are not paid.

By using 12.07% to calculate holiday entitlement for irregular hours or part-year workers, this keeps their statutory leave entitlement in line with that of regular full-time workers. As such, the new rules rectify the flaws identified by the Supreme Court in the case of Harpur v Brazel in which term-time and other atypical workers could recover holiday pay based on an averaging method of 52 weeks, even if this meant that the worker received a windfall. The court observed in this case that the previous rules did not allow annual leave entitlement to be lawfully pro-rated downwards to reflect hours actually worked.

 

Section D: How to Calculate Holiday Pay

 

By law, employers must usually provide holiday pay during a worker’s statutory leave, where workers are entitled to a week’s pay for each week of leave they take. However, the rate of holiday pay is calculated according to the kind of hours someone works and how they are paid for that time, including full-time, part-time, term-time and casual workers.

For full-time or part-time workers with fixed days or fixed hours, this is straightforward, although it can become quite complex for those working irregular hours. However, the general principle is that holiday pay received by a worker should reflect what they would be earning if they were at work, regardless of their working pattern. In circumstances where a worker does not receive the same amount of pay each week, month or other specified pay period, the employer should refer back to the previous 52 weeks to calculate what that worker should be paid.

 

 

Working pattern	Weekly pay for holiday pay calculation
Regular hours and fixed pay (full- or part-time)	A worker’s pay for a week
Shift work with regular hours (full- or part-time)	The average number of weekly fixed hours a worker has worked in the previous 52 weeks, at their average hourly rate
Irregular-hours and part-year work	A worker’s average pay from the previous 52 weeks (only counting weeks in which they were paid)

 

 

1. Holiday Pay for Regular Hours Workers

 

For a full-time member of staff working fixed hours on fixed pay, a week’s pay will still be calculated based on that worker’s pay for a week. Again, for a part-time member of staff working fixed hours on fixed pay, a week’s pay will be based on their pay for a week.

Equally, under the new Regulations, the two distinct pots of annual leave (the 4 weeks’ leave as previously derived under EU law and the 1.6 weeks’ leave under domestic law) with the two minimum rates of pay have also been maintained. This means that workers will continue to be entitled to 4 weeks of annual leave at their normal rate of pay and 1.6 weeks at their basic rate, although many employers have long since taken a pragmatic approach, paying all 5.6 weeks’ annual leave at the higher normal pay rate.

However, in calculating the normal rate of pay, a new statutory definition has been introduced under the amended Regulations. This means that the following types of payments are to be included when determining the amount of a week’s pay:

 

a. payments, including commission payments, which are intrinsically linked to the performance of tasks which a worker is obliged to carry out under the terms of their contract of employment

b. payments for professional or personal status relating to length of service, seniority or professional qualifications, and

c. other payments, such as overtime payments, which have been regularly paid to a worker in the 52 weeks preceding the holiday pay calculation date.

 

Although intended to provide clarity, there remain grounds for uncertainty and challenge here, not least in respect of whether payments are “intrinsically linked to the performance of tasks” or have been paid with sufficient regularity. There may even be scope to include irregular payments, such as performance-related bonuses, although the Regulations are unclear on this point. Unfortunately, without clarification that only regular payments will be affected, the revised rules open the door to sizeable additional payments for holiday pay, where bonuses can make up a significant percentage of a person’s average weekly pay.

Interpretation of the new Regulations and what should be included as part of the holiday pay calculation may need to be tested before the employment tribunals in due course, but in sectors where bonuses are high, such as the financial services sector, the potential additional cost of including bonuses in holiday pay could be significant for employers.

Additionally, employers who do not currently include payments such as overtime, commission or bonuses in holiday pay calculations will now need to make a decision on whether to treat the two distinct pots of leave (the 4 weeks and 1.6 weeks) separately.

 

2. Holiday Pay for Irregular Hours & Part-Year Workers

 

For people working irregular hours, such as zero-hours workers, and for part-year workers, as they are entitled to paid time off for every hour worked, where their holiday entitlement is pro-rated to hours undertaken, one week’s pay will be calculated based on the average hours worked and hourly rate received over the past 52 weeks. However, for these types of workers, the practice of rolled-up holiday pay (RHP) has been re-introduced under the revised rules, where RHP will be permitted should the employer prefer this approach.

When adopting an RHP approach, holiday pay is calculated by way of a 12.07% uplift for all work done, rather than the worker receiving pay during their annual leave. If employers choose to use rolled-up holiday pay, they will be required to calculate a worker’s holiday pay as 12.07% of the worker’s total earnings within a pay period. The employer adopting an RHP approach must also itemise holiday pay separately on the worker’s payslip.

However, if implementing RHP, this does not allow scope for distinguishing between different types of EU-derived or domestic annual leave, and paying them at different rates, where the uplift must be paid on all earnings. A special formula must also be used for calculating holiday pay if a worker is on sick leave, maternity leave or other parental leave.

 

Section E: Holiday Carry Over Rules

 

As under the previous rules, a worker can carry over a maximum of 1.6 weeks’ paid annual leave, provided their employer permits this. Additionally, if a worker gets more than 5.6 weeks’ leave, their employer may allow them to carry over any untaken contractual leave.

However, to avoid uncertainty, the new rules from April 2024 ensure that workers can carry over some or all of any unused leave they were unable to take because of absence due to sick leave, or maternity or other parental leave. The new rules also clarify that irregular hours and part-year workers are allowed to carry over any accrued untaken leave in these circumstances.

Finally, if an employer is in default of the rules, the worker will have a right to carry forward holiday. This could be where the employer either fails to recognise a worker’s right to paid annual leave, or fails to give the worker a reasonable opportunity to take that leave or inform them that any leave not taken, which cannot be carried forward, will be lost.

 

Section F: Summary

 

Holiday pay is a legal requirement in the UK, ensuring that workers receive payment during their statutory annual leave. Under the Working Time Regulations 1998, all workers are entitled to a minimum of 5.6 weeks’ paid holiday per year, which equates to 28 days for full-time employees. Part-time and irregular workers receive a pro-rata equivalent based on their working hours.

For employers, understanding how to calculate holiday pay correctly is crucial to maintaining compliance. Holiday pay should reflect what a worker would earn during their normal working hours, including regular overtime, commissions, and bonuses where applicable. Miscalculations can lead to underpayment, which could result in legal disputes and fines.

Employers must also be aware of the specific rules regarding holiday entitlement for different types of contracts, such as zero-hour and agency workers. New regulations introduced in April 2024, requiring holiday pay to be accrued based on hours worked, add another layer of responsibility.

Failure to comply with holiday pay regulations can not only damage employee relations but also attract legal action. Employers should regularly review their policies and ensure they are up-to-date with the latest legal requirements to avoid any potential risks.

 

Section G: Need Assistance?

 

Holiday pay is a common source of workplace complaint, often due to employees misunderstanding their entitlement. The rules in this area can become complex, and have been subject to reform, as such, employers must ensure they are using the correct holiday pay calculations based on the relevant holiday entitlement to avoid errors, and to act quickly if any queries or issues are raised by employees.

For specialist advice and guidance when dealing with holiday pay and entitlements, contact our experts.

 

Section H: Holiday Pay FAQs

 

What is the difference between holiday pay and annual leave?

Holiday pay refers to the payment employees receive while they are on their entitled leave, whereas annual leave is the actual amount of time off work that employees are entitled to take each year.

 

How is holiday pay calculated for part-time employees?

Holiday pay for part-time employees is usually calculated on a pro-rata basis, depending on the number of hours worked. They are entitled to the same amount of holiday as full-time employees, adjusted proportionally to the hours they work.

 

Do employees accrue holiday pay during sick leave?

Employees continue to accrue holiday entitlement while on sick leave. If they are unable to take their leave due to illness, they may be allowed to carry it over to the next leave year.

 

Can holiday pay include overtime?

If overtime is a regular part of an employee’s work, it should be included in the calculation of their holiday pay. This includes guaranteed and non-guaranteed overtime that the employee is required to work.

 

What happens if an employee doesn’t take all their holiday entitlement?

Generally, employees should take their holiday within the current leave year. However, in some cases, such as long-term illness, they may be allowed to carry over unused holiday to the next year. Employers should have clear policies on this.

 

Is holiday pay owed at the end of employment?

If an employee leaves their job, they are entitled to be paid for any accrued but untaken holiday. This is usually calculated up to their leaving date and paid with their final wages.

 

Can employers refuse holiday requests?

Employers can refuse holiday requests if they have a valid business reason, such as ensuring there is enough staff cover. However, they must provide reasonable notice if they do so, typically twice the length of the requested holiday.

 

How does holiday pay work for zero-hour contract workers?

Zero-hour contract workers are still entitled to holiday pay. Their entitlement is usually calculated based on the hours they work and the equivalent of 5.6 weeks’ paid holiday per year, pro-rated according to hours worked.

 

Can holiday pay be included in the hourly rate?

Holiday pay cannot be rolled up or included in the hourly rate as a separate payment. It must be paid at the time when the holiday is taken, based on the actual hours worked.

 

What should employers do if there’s a dispute about holiday pay?

If there is a dispute, employers should first try to resolve it through internal discussions or by consulting the employment contract. If the issue remains unresolved, legal advice may be necessary, or the employee may seek redress through an employment tribunal.

 

Is 20 days annual leave legal UK?

Most workers are entitled to a statutory minimum of 5.6 weeks’ paid holiday per year, which equates to 28 days for a full-time employee working fixed hours, wchih can include bank holiday. Employers cannot provide less than the relevant statutory minimum entitlement.

 

How do you calculate holiday pay for part-time workers?

Part-time workers are entitled to 5.6 weeks’ paid annual leave on a pro rata basis, where this will amount to fewer paid days’ leave than their full-time counterparts. For example, 3 days a week equates to 16.8 days (3 × 5.6).

 

Is everyone entitled to holiday pay?

Most people classed as “workers” are legally entitled to a week’s pay for each week of statutory leave that they take.

 

Section I: Glossary

 

 

Term	Definition
Annual Leave	The total amount of paid time off work that an employee is entitled to take each year.
Holiday Pay	The payment that employees receive while they are on their entitled annual leave.
Pro-Rata	A proportional calculation used to determine entitlements (such as holiday pay) for part-time employees.
Working Time Regulations 1998	The UK legislation that outlines employees’ rights regarding working hours and holiday entitlements.
Zero-Hour Contract	A type of contract where the employer is not obliged to provide any minimum working hours, and the worker is not obliged to accept any work offered.
Overtime	Hours worked by an employee that exceed their standard contracted hours, which may be included in holiday pay calculations if regularly worked.
Sick Leave	Time off from work that an employee is entitled to take when they are ill, during which they continue to accrue holiday entitlement.
Carrying Over	The practice of allowing employees to transfer unused holiday entitlement from one leave year to the next, under certain conditions.
Final Pay	The last payment made to an employee when they leave their job, which includes any outstanding holiday pay.
Employment Tribunal	A legal body that resolves disputes between employers and employees, including those related to holiday pay.
Accrual	The process of accumulating holiday entitlement over time, typically based on the amount of time worked.
Guaranteed Overtime	Overtime hours that an employer is contractually obliged to offer and which the employee is required to work.
Non-Guaranteed Overtime	Overtime hours that an employer is not required to offer, but if offered, the employee must work them.
Leave Year	A 12-month period in which an employee’s holiday entitlement is calculated and used.

 

 

Section J: Additional Resources

 

UK Government: Holiday Entitlements
https://www.gov.uk/holiday-entitlement-rights
Comprehensive guide on holiday entitlement and rights in the UK, provided by the official government website.

 

ACAS (Advisory, Conciliation and Arbitration Service): Holiday Pay
https://www.acas.org.uk/holiday-pay
ACAS offers practical advice for employers and employees on calculating holiday pay, including examples and common scenarios.

 

CIPD (Chartered Institute of Personnel and Development): Holiday Entitlement and Pay
https://www.cipd.co.uk/knowledge/fundamentals/emp-law/holiday-pay
A detailed resource from CIPD, aimed at HR professionals, covering the intricacies of holiday entitlement and pay.

 

Working Time Regulations 1998 (Legislation.gov.uk)
https://www.legislation.gov.uk/uksi/1998/1833/contents/made
The full text of the Working Time Regulations 1998, the key legislation governing holiday pay and working hours in the UK.

 

ACAS Helpline
https://www.acas.org.uk/contact
Access to the ACAS helpline, where employers and employees can get free advice on holiday pay and other employment-related issues.