Getting to grips with the complexity of holiday pay
Calculating accrued holiday pay is essential to employment regulations and is based on an employee’s regular working hours. This makes it straight-forward for full time employees, but what about those people who don’t work regular hours?
For employees who do not work standard hours and rates of pay, calculating holiday pay can be complex. And new regulations from January 2024 move the goalposts yet again!
What are non-standard working patterns?
With working patterns changing, many more people are not working the standard 9-5, 5 days a week. Classed as irregular hours workers, these include;
- Part-time workers
- Shift workers
- Zero hours contracts
- Term time workers
- Agency workers
Featured Guide
Your complete guide to calculating holiday pay
This comprehensive guide is fully up to date with the latest 2024 regulations and covers the changes to how holiday pay is calculated for workers who do not work regular or fixed hours.
What holiday pay are workers entitled to?
Workers are entitled to 5.6 weeks of holiday a year.
- This can include bank and public holidays
- Employers can give additional holiday as contractual holiday
- Part-time or irregular hours workers pro rata based on hours worked
- From 1st January 2024, holiday pay is calculated as 12.07% of salary
The history of holiday pay in the UK
Calculating holiday pay for workers who do not work regular hours has been one of the areas of payroll compliance that has seen lots of change, contradiction and challenges. Driven by high-profile tribunal cases and judgements, it has left many employers confused. In 2024, new regulations seek to simplify holiday pay calculations.
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2024 Regulations
The 52-week average is abolished, and all workers, including those working irregular or part-time hours, use the same 12.07% of salary calculation.
Irregular-hours and part-year workers will have their holiday pay calculated based on the hours worked in that pay period rather than as an average of past pay periods.
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April 2020 – Jan 2024
In April 2020, the reference period by which employers must go back to average the pay for irregular hours workers was increased to 52 weeks of paid work.
This was capped at two years (104 weeks), but employers only needed to go back to the point where they had 52 weeks of pay data.
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Pre April 2020
Before April 2020, employers were required to look back to the last 12 weeks employees worked and earned pay to establish the reference period for their average weekly way.
There was no limit on how far they had to go back to get 12 weeks of paid work. This could be beneficial or detrimental for employees with seasonal work patterns.
Frequently asked questions
Holiday pay entitlement and pay calculations are some areas with the most confusion and questions.
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Holiday pay calculations should include salary items such as overtime, contractual bonuses and commission.
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As of 1 January 2024, regulations on the calculation of holiday pay for irregular hours workers changed to match those of standard hours workers at 12.07% of salary for a pay period. These come into effect after 1 April 2024.
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No, employers are legally obligated to pay employees for their annual leave entitlement as part of The Working Time Regulations.
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No, employers are not permitted to pay employees in lieu of taking their annual leave, except in certain circumstances, such as termination of employment.
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Generally, statutory holiday entitlement cannot be carried over from one holiday year to another. However, most employers have their own policy on this and may allow some days to be carried over or make exceptions in specific circumstances.
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Rolled-up holiday pay is a practice of topping up an employee’s salary with an additional amount intended to represent holiday pay, so they get a higher salary rather than taking paid annual leave.
This practice was illegal, but under the new 2024 regulations, it will be allowable for employees with irregular hours or part-year workers. Employers should be aware that if they instigate rolled-up pay, this could constitute a contractual change.
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It is up to the employer to decide whether you have to work on bank or national holidays. If your place of work is closed on bank holidays, your employer can make you take the time off as part of your annual leave entitlement.
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All workers, no matter how many hours they work, are entitled to 5.6 weeks’ statutory paid holiday in pro-rate to the hours they work.
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Yes, if that is part of your contractual pay. Commission, regular overtime and bonuses are taken into account for the first four weeks of holiday pay but not the additional 1.6 weeks given to UK employees (to make up the 5.6 weeks).
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