Understanding Irregular Hours Holiday Pay for Employers

In the UK, employers have to comply with specific regulations regarding holiday pay, as stipulated under the Working Time Regulations (WTR). This means ensuring holiday pay and entitlement policies align with current legislation, particularly for those working irregular hours, when the calculations can become complicated.

Failure to adhere to these rules can, however, lead to tribunal claims, financial penalties and reputational damage.

This article provides employers with a comprehensive guide to irregular hours holiday pay. We will explore the legal framework governing holiday pay, outline best practices for calculations and address common challenges employers may face to avoid errors or complaints.

Section A: Understanding Irregular Hours

It’s become standard across many industries for employers to rely on flexible staffing to meet varying demands. As a result, irregular hours have become a common feature in today’s workplace.

Managing irregular hours workers, however, can present risks for employers. Due to the fluctuating nature of their working hours, their employment entitlements may not always be clear. But employers have to ensure that these workers are given their correct and full entitlements, including holiday pay.

Since different rules apply to irregular and part-year workers compared to those with regular working patterns, employers need to be able to accurately identify irregular workers to ensure they are provided with the correct holiday entitlements and pay.

1. Definition of Irregular Hours

Irregular hours refer to work schedules that do not follow a consistent or predictable pattern. Unlike traditional full-time roles with set hours, those working irregular hours may have shifts that vary significantly from week to week or month to month. This can include variations in the number of hours worked each day, as well as the specific times of day when work is performed.

Irregular hours may also encompass part-time roles, on-call positions, term-time jobs and seasonal work, where staffing needs change based on demand.

The specifics of each worker’s contractual arrangements and working patterns would need to be considered to determine if they are classed as an irregular worker.

2. Examples of Irregular Hours Roles

The following are roles that commonly involve irregular working hours:

a. Hospitality Workers: Employees in restaurants, hotels and bars often work irregular hours, including evenings, weekends and holidays. Their schedules can change frequently based on customer demand, special events or staffing levels.

b. Healthcare Professionals: Medical staff, such as nurses and paramedics, frequently have shifts that vary widely, including night shifts and on-call duties. Their work schedules may depend on patient needs and emergency situations, making regular hours impractical.

c. Retail Staff: Many retail positions, particularly in stores that operate outside typical business hours, involve irregular hours. Employees may work varying shifts, including early mornings, late nights, and weekends, depending on the store’s operating hours and peak shopping times.

d. Construction Workers: The construction industry often involves project-based work with fluctuating hours. Workers may have varying schedules based on project timelines, weather conditions, and the availability of materials and labour.

e. Transportation and Delivery Services: Drivers for delivery services, taxis and ride-sharing companies typically have irregular hours, as their work often depends on customer demand. This can result in shifts that vary from day to day or week to week.

Section B: Legal Framework for Holiday Pay

In the UK, all workers are entitled to a minimum amount of paid holiday, calculated based on their average working hours.

The statutory entitlement is 5.6 weeks of paid holiday per year for full-time employees, which equates to 28 days for someone working a standard 5-day week. This can include bank holidays, but some employers opt to give these days in addition.

[Insert table 3: Key Terms Related to Holiday Pay]

Many employers also offer enhanced annual leave entitlement as a contractual term. In these cases, the contractual holiday pay and entitlement cannot be lower than the relevant statutory minimum.

For all workers, holiday pay must reflect their normal pay and include regular payments such as overtime, bonuses, and commission.

For employees working irregular hours, calculating holiday pay can be more complex than for full-time workers, given the variable nature of their work patterns. Compounding the complexity is that the law in this area has been subject to change.

The key legislation governing this area are:

a. Working Time Regulations (WTR) 1998

The WTR outlines the rights of workers regarding working hours, rest breaks, and holiday entitlement. It specifies that all workers, including those with irregular hours, are entitled to at least 5.6 weeks of paid annual leave. The regulations also require employers to provide clear information about holiday pay and how it is calculated.

b. Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023

These regulations apply to annual leave taken on or after 1 April. They were brought in to redress the position resulting from the Supreme Court decision in Harpur Trust v Brazel (2021). This case confirmed that part-year workers are entitled to the same holiday entitlement as full-year workers, irrespective of hours worked. The court ruled that pro-rating holiday entitlement based on hours worked was unlawful, which led to perceived unfairness for full-time workers.

To address this imbalance, the government updated the calculation methods in 2024, reintroducing the 12.07% accrual method for calculating holiday entitlement for irregular hours and part-year workers.

[Insert table 5: Holiday Pay Entitlements by Employment Type]

Section C: Irregular Hours Holiday Pay Rules

In the UK, the laws governing holiday pay for irregular hours workers have recently undergone significant changes to ensure fairness and compliance with legal standards. These updates aim to simplify the process for employers and align holiday entitlements more closely with the actual working patterns of employees who do not work fixed schedules.

1. Calculating Holiday Pay for Irregular Hours Workers

Following a change in the law that applied from April 2024, holiday entitlement is calculated as 12.07% of the actual hours worked for irregular hours and part-year workers. This method reflects that all workers are entitled to 5.6 weeks of paid leave annually, which is equivalent to 12.07% of the 46.4 working weeks in a year (52 weeks minus the 5.6 weeks of statutory holiday).

For each hour worked, the employee accrues holiday at a rate of 12.07%. This means that employers can simply multiply the total hours worked in a pay period by 12.07% to determine the amount of holiday entitlement.

2. Reference Period for Irregular Workers’ Holiday Pay

A key area of complication for irregular hours holiday pay is that workers, by definition, work varying hours, making it more difficult to apply the accrual method to “actual hours worked”. Irregular workers, such as those on zero-hours contracts, also may not have consistent weekly earnings.

A standard 52-week reference period is therefore used to ensure holiday pay fairly reflects their actual earnings. Applying this method, pay is averaged over the course of 52 weeks to give a fair representation of what the worker typically earns, with the aim of preventing underpayment during their holiday leave.

The reference period should cover the last 52 weeks prior to the leave being taken, excluding any weeks where no pay was received. If the worker hasn’t been employed for a full 52 weeks, the calculation is based on the entire employment period.

To calculate holiday pay, add up the total earnings over the relevant 52 weeks (including overtime and bonuses) and divide by the number of weeks with pay. This average is then used to determine the employee’s holiday pay rate.

[Insert table 1: Step by Step Calculation]

3. New Starters and Leavers

For new starters, holiday entitlement is pro-rated based on the hours worked from their start date. Employers must calculate the holiday accrued using the 12.07% rate and determine holiday pay based on the average earnings over the last 52 weeks. For example, an employee who starts mid-year and works 500 hours would accrue approximately 60 hours of holiday.

When an employee leaves partway through the holiday year, employers must calculate any remaining holiday pay due. This involves determining the total hours worked up to their leaving date, applying the 12.07% rate, and paying out any unused holiday based on their average pay. If an employee has taken some holiday, any remaining balance should be paid in lieu.

4. What to Include in Holiday Pay

Regular payments, such as overtime, bonuses, and commissions, must also be included when calculating holiday pay. The reference period for determining the average pay remains at 52 weeks prior to the leave being taken.

When calculating holiday pay for employees, especially those with irregular hours, all types of regular earnings must be included, such as:

a. Basic Salary

The core of holiday pay calculations is the employee’s basic salary or hourly wages. For employees with fixed salaries, this is straightforward. However, for those with irregular hours, holiday pay is based on their average earnings over a specified 52-week reference period.

b. Overtime Pay

If overtime is a regular and predictable part of an employee’s pay, it must be included in the holiday pay calculation. This applies even if the overtime hours vary. The law ensures that employees are not financially disadvantaged when they take time off by excluding earnings they routinely receive.

c. Bonuses, Commissions, and Allowances

Any regular payments, such as bonuses, commissions, and shift allowances, should also be included. If these payments are made consistently as part of the employee’s normal remuneration, they form part of their holiday pay calculation. For example, if an employee regularly receives commission on sales, this must be factored into their holiday pay to reflect their typical earnings.

5. Rolled-Up Holiday Pay

Rolled-up holiday pay is a method where employers include holiday pay within an employee’s regular wages, rather than paying it out separately when leave is actually taken. This approach is now permitted under the updated UK regulations effective from 1 April 2024, specifically for irregular and part-year workers.

In practice, this means that instead of paying holiday pay when the employee takes leave, a 12.07% uplift is added to their regular pay in each payslip. This percentage reflects the statutory entitlement of 5.6 weeks of holiday as a proportion of the 46.4 working weeks in a year.

For example, if an employee earns £10 per hour, their pay with rolled-up holiday pay included would be £11.21 per hour (£10 + £1.21 for holiday pay).

Rolled-up holiday pay must be clearly itemised on the employee’s payslip, showing the amount that represents holiday pay separately from normal wages.

Even though employees receive holiday pay as part of their wages, they still have the right to take time off. Employers cannot deny employees their statutory leave, even if holiday pay has already been paid in advance.

Section D: Risks of Non-Compliance

Failing to comply with holiday pay regulations for irregular and part-year workers can expose employers to legal disputes and enforcement action.

1. Workers’ Rights to File Grievances

Workers who believe they have not received the correct holiday pay have the right to raise a grievance with their employer. This internal process allows workers to formally challenge any perceived underpayments or incorrect calculations.

If the grievance is not resolved satisfactorily, workers may escalate the issue to an employment tribunal.

2. Tribunal Claims

Employees can bring a claim to an Employment Tribunal if they feel their statutory holiday entitlements have not been met. Common claims include:

a. Unpaid holiday pay
b. Incorrect calculation of holiday entitlement
c. Unlawful deductions from wages related to holiday pay

If the tribunal finds in favour of the employee, employers may be required to pay compensation, which could include backdated holiday pay for up
to two years.

3. Enforcement Action by Regulatory Bodies

The UK’s Employment Agency Standards Inspectorate and HM Revenue & Customs (HMRC) have the authority to investigate breaches of employment laws, including holiday pay.

Employers found to be in breach may face enforcement actions, including fines and penalties, enforcement notices requiring corrective actions within a specified timeframe, and public listing as a non-compliant employer, which could damage the company’s reputation.

4. Employer Brand Reputational Damage

Non-compliance can severely impact an employer’s reputation, especially if disputes become public or result in tribunal decisions against the company. This can affect employee morale, talent retention, and customer trust.

5. Increased Risk of Class Action Claims

If multiple workers are affected by non-compliance, there is a risk of group or class action claims, where workers collectively seek redress. This can lead to substantial financial liabilities and legal costs.

Section E: Handling Complaints about Holiday Pay for Irregular Hours Workers

Employers have to take any query or complaint about holiday pay seriously. It helps to have a clear and transparent process in place to handle these matters appropriately and to avoid escalation.

1. Establish Clear Communication Channels

Employees should know who to contact if they have concerns about their holiday pay. In the first instance, this could mean an informal discussion with their line manager. The employer may also set up dedicated channels, such as an HR email address or a designated contact person, to handle such queries. Clearly communicate this information to all staff members, ideally during onboarding and in employee handbooks.

2. Review the Query Thoroughly

When an employee raises a concern, it’s important to listen carefully and review their complaint in detail. Check the employee’s records, including their hours worked, pay slips and previous holiday entitlements. Ensure that the calculation method used aligns with the latest regulations, especially the 12.07% accrual method for irregular hours workers.

3. Respond Promptly and Transparently

Prompt action demonstrates respect for the employee’s concerns and can prevent the issue from escalating. Provide a clear explanation of how their holiday pay was calculated, referencing any relevant laws or company policies. If an error is found, correct it promptly and issue any owed holiday pay.

4. Formal Grievance Procedure

If an employee remains dissatisfied after the initial response, they should have the option to file a formal grievance. Ensure that your grievance procedure is clear, fair and accessible. Employers must handle grievances professionally to prevent disputes from escalating to tribunal claims.

5. Document All Interactions

Keep detailed records of all communications related to holiday pay complaints. Document the employee’s query, your investigation, and the resolution offered. This documentation can be invaluable if the issue progresses to legal action.

6. Conduct Regular Training and Audits

To minimise future complaints, provide regular training to HR and payroll staff on the latest holiday pay regulations. Periodically audit your holiday pay processes to ensure compliance, especially for irregular hours workers.

Section F: Best Practices for Employers

Employers are advised to have an annual leave policy in place that sets out the rules and entitlements in relation to holiday pay, including provisions specific to irregular hours workers. An effective policy will help ensure consistent compliance with the regulations and avoid complaints and disputes with workers about their entitlements.

1. Tips for Implementing an Effective Holiday Pay Policy

[Insert table 4: Best Practices for Holiday Pay Policies]

a. Develop a Clear Policy Document

Create a comprehensive holiday pay policy that outlines how holiday pay is calculated, including the reference period and methods used to determine average pay. Ensure that the policy addresses the specific needs of employees with irregular hours.

b. Regularly Review and Update the Policy

Employment laws can change, so it’s important to regularly review your holiday pay policy to ensure it remains compliant with current regulations. Update the policy as needed based on changes in legislation or best practices in the industry.

c. Provide Training for HR and Management

Ensure that HR personnel and management are well-trained on the holiday pay policy and the legal obligations surrounding holiday pay for irregular hours. This training should cover how to calculate holiday pay accurately and how to handle employee inquiries effectively.

d. Make full use of Payroll Systems

Invest in payroll software that can automate holiday pay calculations based on hours worked and earnings over the reference period. This helps reduce errors and streamline the process, making it easier to manage irregular hours.

e. Document Employee Work Patterns

Maintain accurate records of employee hours worked, including any variations in shifts or overtime. This documentation is essential for calculating holiday pay correctly and ensuring compliance with legal requirements.

f. Monitor Employee Hours and Pay

Regularly monitor employee hours and pay to ensure that calculations for holiday pay reflect their true earnings. If discrepancies arise, address them promptly to avoid potential disputes.

g. Create an Open-Door Policy

Encourage employees to approach management or HR with any questions or concerns regarding holiday pay. An open-door policy fosters a culture of transparency and support, helping to build trust between employees and management.

2. Role of Communications

Employers are required to be open and transparent in their holiday pay policy, procedures and calculations. This means proactively informing workers about their holiday pay policy and any changes that may occur.

a. Provide Written Information

Distribute the holiday pay policy in written format, whether through employee handbooks, internal portals, or onboarding materials. This ensures that all employees have access to the information and can refer to it as needed.

b. Conduct Information Sessions

Host regular information sessions or workshops to explain holiday pay rights and entitlements, particularly for those working irregular hours. These sessions can provide an opportunity for employees to ask questions and seek clarification on complex topics.

c. Use Multiple Communication Channels

Use multiple communication channels to share information and encourage feedback.

d. Encourage Feedback

Invite feedback from employees regarding the clarity and accessibility of the holiday pay policy. Use this feedback to make improvements, ensuring that employees feel heard and valued.

Section G: Common Challenges and Solutions

Managing holiday pay for employees who work irregular hours presents a range of challenges for employers, especially with the recent changes to UK regulations. Employers will need to address these issues to maintain compliance and ensure fairness.

[insert table 2: Common Challenges and Solutions in Holiday Pay Management]

1. Complex in Calculations

Calculating holiday pay for irregular hours workers can be complex due to fluctuating schedules, inconsistent earnings, and varying work patterns. The updated rules requiring a 52-week reference period and the inclusion of regular payments (such as overtime and bonuses) make the process even more challenging.

Invest in payroll software that automates holiday pay calculations based on the latest regulations. This reduces manual errors and ensures compliance. Train HR and payroll staff on the correct calculation methods, especially the 12.07% accrual rate, to ensure they are well-equipped to handle the complexities.

2. Correct Classification of Workers

Employers may struggle to correctly classify employees as “irregular hours” or “part-year” workers. Misclassification can lead to incorrect holiday pay calculations and potential legal disputes.

Conduct a thorough audit of your workforce to identify which employees fall under the definitions of irregular or part-year workers based on their work patterns. Review employment contracts and update them as necessary to reflect the correct classification and entitlements.

3. Compliance with Changing Regulations

Keeping up with the latest changes in employment law, such as the reintroduction of the 12.07% accrual method and the option for rolled-up holiday pay, can be overwhelming. Non-compliance can result in financial penalties and legal claims.

Stay informed by subscribing to updates from reputable sources like ACAS or the UK Government website. Take professional advice to review your policies and ensure they align with the latest regulations.

4. Managing Rolled-Up Holiday Pay

While rolled-up holiday pay simplifies the process for employers, it requires clear documentation and transparency on payslips. Failure to properly itemise rolled-up holiday pay can lead to misunderstandings and disputes with employees.

Clearly itemise rolled-up holiday pay on employees’ payslips, separating it from regular wages to avoid confusion. Communicate to employees that they are still entitled to take time off, even if their holiday pay is included in their regular wages.

5. Lack of Transparency and Communication with Employees

Employees with irregular hours may not fully understand how their holiday pay is calculated, leading to grievances and disputes.

Provide clear, written explanations of how holiday pay is calculated, especially when using the 12.07% method or rolled-up pay. Hold information sessions or Q&A meetings to address any concerns and ensure that employees understand their entitlements.

6. Inconsistent Record-Keeping

Inaccurate or incomplete records of hours worked and payments can lead to errors in holiday pay calculations, increasing the risk of non-compliance.

Implement a robust time-tracking system to record hours accurately, especially for employees with fluctuating schedules. Regularly audit your payroll records to ensure they are complete, accurate, and up-to-date.

7. Handling Part-Year Leavers

Calculating holiday pay for part-year workers who leave partway through the holiday year can be particularly challenging, especially with pro-rata entitlements.

Use payroll software that includes automated calculations for part-year leavers to ensure they receive the correct payment for unused holiday. Review and update your exit procedures to ensure that holiday pay calculations are included as part of the offboarding process.

Section H: Summary 

Irregular hours workers, often on zero-hours contracts or casual agreements, do not have fixed schedules, so their holiday pay must be calculated based on their actual hours worked. Recent updates to UK regulations, effective from April 2024, have reintroduced the 12.07% accrual method. Employers can calculate holiday entitlement by applying 12.07% to the total hours worked.

A key consideration for employers is ensuring that regular payments such as overtime, bonuses, and commissions are included in the holiday pay calculations. This prevents potential underpayment and ensures compliance with legal standards. Using a 52-week reference period to determine average pay helps reflect typical earnings, ensuring holiday pay is fair.

The risks for employers include the possibility of grievances or tribunal claims if holiday pay is not calculated accurately. Employees may challenge discrepancies, which could result in costly legal disputes.

Employers must also remain mindful of correctly categorising workers to determine whether they qualify as irregular hours or part-year employees. Maintaining clear communication with staff about their entitlements and implementing robust payroll systems can help reduce compliance risks.

Section I: Need Assistance?

Holiday pay is a common source of workplace complaint, given the rules in this area can become complex and have been subject to reform. Employers must ensure they are using the correct holiday pay calculations based on the relevant holiday entitlement for their irregular workers 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 J: FAQs

What are irregular hours workers?

Irregular hours workers are employees whose work schedules change week by week, such as those on zero-hours contracts or casual staff. Their hours are not fixed, making it essential to calculate holiday pay based on actual hours worked.

How do you calculate holiday pay for irregular hours workers?

Holiday pay for irregular hours workers is calculated using the 12.07% accrual method. This means that for every hour worked, 12.07% is accrued as holiday entitlement. The average pay over a 52-week reference period is used to determine the holiday pay rate.

What is rolled-up holiday pay?

Rolled-up holiday pay involves including holiday pay within the employee’s regular wages, rather than paying it separately when leave is taken. It must be clearly itemised on payslips, ensuring transparency, and employees still have the right to take time off.

What should employers do if an employee leaves partway through the year?

If an employee leaves mid-year, employers must calculate any accrued but unused holiday entitlement and pay it in lieu. This involves applying the 12.07% rate to the hours worked up to their leaving date, minus any holiday already taken.

Are bonuses and overtime included in holiday pay?

Yes, regular bonuses, overtime, and commission payments must be included when calculating holiday pay for employees with irregular hours. This ensures that holiday pay reflects typical earnings.

Can part-year workers’ holiday pay be pro-rated?

Part-year workers are entitled to the same 5.6 weeks of statutory holiday as full-year employees, calculated using the 12.07% method.

What is the 52-week reference period?

The 52-week reference period is used to calculate the average weekly pay for holiday pay purposes. It includes only weeks where the employee was paid, excluding any weeks with zero earnings.

Do the new holiday pay rules apply to all employees?

No, the recent changes primarily affect irregular hours and part-year workers. Employees with fixed hours and regular schedules are not affected by these specific updates but must still comply with standard holiday pay regulations.

What should employers do to stay compliant with the new rules?

Employers should review their workforce classifications, update payroll systems, and ensure that holiday pay is calculated correctly for irregular hours and part-year workers. Regular audits and clear communication with employees can also help avoid disputes.

Section K: Glossary 

[Insert table]

Section L: Additional Resources

UK Government Guidance on Holiday Pay and Entitlement Reforms
https://www.gov.uk/government/publications/simplifying-holiday-entitlement-and-holiday-pay-calculations
This official government page provides detailed guidance on the new holiday pay rules effective from January and April 2024, specifically for irregular and part-year workers.

ACAS (Advisory, Conciliation and Arbitration Service)
https://www.acas.org.uk/checking-holiday-entitlement
ACAS offers comprehensive advice on calculating holiday entitlement and pay, with practical examples for employers managing irregular hours staff.

CIPD (Chartered Institute of Personnel and Development)
https://www.cipd.co.uk/knowledge/fundamentals/emp-law/holiday
The CIPD site provides resources for HR professionals on understanding and implementing the latest holiday pay regulations, including best practices.

HMRC Guidance on Payroll Compliance
https://www.gov.uk/payroll-annual-reporting
This HMRC guide covers payroll reporting requirements, including how to manage holiday pay calculations for workers with irregular hours.

ACAS Holiday Pay Calculator
https://www.acas.org.uk/holiday-pay-calculator
A practical tool provided by ACAS to help employers accurately calculate holiday pay, especially for employees on irregular hours contracts.