A Simple Guide to Holiday Pay

Shona
5 days ago
3 min read

Holiday pay is one of those topics that seems simple… until you’re the one responsible for calculating it.

Between different types of leave, changing legislation, irregular hours, rolled-up holiday pay, and confusion over what counts as “normal pay,” it’s no surprise that employers regularly find themselves second-guessing whether they’re getting it right.

The truth is: holiday pay isn’t just a legal requirement — it’s a core part of a fair, compliant and attractive employer offer. When employees know their leave is handled properly, trust increases, disputes fall away, and businesses stay safely on the right side of the law.

In this blog, we break down exactly how holiday entitlement and pay work under the UK’s Working Time Regulations — in clear, practical terms. No jargon. No legal waffle. Just the essentials you need to protect your business and support your team.

Let’s make holiday pay make sense!

The Basics: What Employees are Entitled to

All UK workers are entitled to a minimum of 5.6 weeks of annual leave or holiday per year. This includes part time, casual, zero hours and irregular hours workers.

The holiday year can be any 12 month period the company decides, but most align their holiday year to the calendar year for ease.

Companies can also opt to offer more than the standard 5.6 weeks (28 days) as an employee benefit.

Calculating Holiday Pay

Workers are entitled to receive their normal pay whilst on holiday. This means we need to break workers down into two sections:

Regular Hours Workers

Workers who work the same hours each week receive their normal pay when they are on holiday. For example if an employee earns £500 a week working 9-5, Monday - Friday consistently, their holiday pay for one week will be £500.

There will be no need to recalculate their holiday pay each time they take holiday.

If your employees or workers work regular overtime, you will need to include this in their holiday pay (see below).

Variable Hours or Variable Pay Workers

Where workers' pay or hours vary on a regular basis, their holiday pay should be based on the workers' average earnings of the previous 52 weeks. E.g. If someone works 20 hours one week, 35 the next, 10 the next — the 52-week average smooths this.

The average pay should include regular overtime, commissions and bonuses that form part of the normal pay.

Weeks with no pay should be skipped and replaced with earlier paid weeks.

What Counts as Normal Pay?

Basic pay
Regular overtime
Shift allowances
Commission
Regular bonuses
Regular travel time payments
Anything paid consistently enough to be “normal”

And what doesn’t count:

One-off bonuses
Expenses
Tips
Sporadic overtime

Irregular Hours Workers and Rolled Up Holiday Pay

In recent years, there has been some case law which has changed the rules around rolled up holiday pay, but in 2024 it changed again.

Rolled Up holiday pay is where employers can pay irregular hours, casual or zero hours workers their holiday pay with their regular pay, even if leave hasn't been taken.

Rolled up holiday pay is calculated as 12.07% of the hours worked and should be paid on top of normal wages and shown on a separate line on the pay slip.

Workers still retain the right to take holiday on a rolled up holiday pay arrangement.

Common Employer Mistakes

Some of the most common mistakes we see employers make are:

paying basic pay only and forgetting to include "normal" pay
using a 12 week average instead of 52
not skipping unpaid weeks in the 52 week calculation
incorrect rolled up holiday pay
incorrect calculations for pro rata holiday

These mistakes might sound trivial, but they can pose a massive risk to your business because employees can make tribunal claims for incorrectly paid wages and these claims are often back-dated.