How to Calculate Holiday Pay in the UK

Basic Holiday Pay Calculation

For employees with fixed hours and regular pay, holiday pay is straightforward: they receive their normal pay for each day or week of holiday taken. A day's holiday pay equals what they would have earned had they worked that day.

Example: Full-time salaried employee

An employee earns £30,000 per year, working 5 days a week. Their weekly pay is £576.92 (£30,000 ÷ 52). A day's holiday pay is £115.38 (£576.92 ÷ 5).

For workers paid by the hour with fixed weekly hours, the calculation is similar: multiply their hourly rate by the number of hours they would normally work on the day of holiday.

Holiday Pay for Part-Time Workers

Part-time workers are entitled to the same 5.6 weeks of holiday as full-time workers, calculated pro rata. Their holiday pay should reflect what they would normally earn on a working day.

Example: Part-time worker

An employee works 3 days a week at £12.50 per hour for 7 hours per day. Their daily pay is £87.50. They are entitled to 3 × 5.6 = 16.8 days of holiday per year. Each day of holiday is paid at £87.50.

Under the Part-Time Workers (Prevention of Less Favourable Treatment) Regulations 2000, part-time workers must not be treated less favourably than comparable full-time workers in terms of holiday entitlement or pay.

Irregular Hours & Zero-Hours Workers

Calculating holiday pay for workers with irregular hours is more complex. Following legislative changes, there are now clear rules for irregular-hours workers and part-year workers:

• Holiday entitlement is calculated as 12.07% of hours worked in each pay period
• Employers may use rolled-up holiday pay, adding 12.07% to the worker's hourly rate
• If not using rolled-up pay, holiday pay should be based on average earnings over a 52-week reference period (ignoring weeks with no earnings)

The 52-week reference period

When a worker's pay varies from week to week, their holiday pay is calculated using the average of their earnings over the last 52 weeks in which they were paid (previously 12 weeks before April 2020). Weeks in which no work was performed are skipped, and you look back further to find 52 qualifying weeks.

This reference period ensures that seasonal fluctuations, variable shifts, and inconsistent hours are all factored into the holiday pay calculation, giving a fairer result for the worker.

Overtime, Commission & Bonuses

A series of legal cases (notably Bear Scotland v Fulton and Lock v British Gas) established that holiday pay must reflect what a worker normally earns, not just their basic pay. This means:

• Regular overtime: If an employee regularly works overtime (whether compulsory or voluntary but regular), the overtime payments should be included in holiday pay calculations for the first 4 weeks of statutory leave (the EU-derived leave under Regulation 13).
• Commission: Results-based commission that forms a regular part of the worker's earnings must be included in holiday pay.
• Regular bonuses: Bonuses that are intrinsically linked to the performance of tasks the worker is contractually obliged to carry out should be included.
• The additional 1.6 weeks: The remaining 1.6 weeks of UK statutory leave (Regulation 13A) only requires basic pay. However, many employers choose to apply the same calculation across all leave for simplicity.

The practical impact is that employers should use the 52-week reference period to calculate average weekly earnings including regular overtime, commission, and qualifying bonuses when paying holiday for the first 4 weeks of statutory entitlement.

Holiday Pay on Termination

When an employee leaves, they are entitled to payment for any statutory holiday they have accrued but not yet taken. The calculation is:

Example

An employee with 28 days' annual leave leaves on 30 June (exactly halfway through a January-to-December leave year). They have taken 10 days of leave.

• Accrued entitlement: 28 × 0.5 = 14 days
• Leave taken: 10 days
• Payment due: 14 − 10 = 4 days' pay

If the employee has taken more leave than they have accrued, the employer can deduct the overpayment from their final pay — but only if the employment contract or a written agreement permits this. Without such a clause, the employer may not be able to recover the overpayment.

Common Mistakes to Avoid

Holiday pay errors are one of the most common causes of employment tribunal claims. Here are the key pitfalls:

• Excluding regular overtime: Failing to include regular overtime in holiday pay is the most widespread error since the Bear Scotland ruling. Audit your payroll to ensure overtime is included.
• Using the wrong reference period: The reference period is 52 paid weeks, not 52 calendar weeks. Weeks with no pay must be skipped.
• Not paying holiday for zero-hours workers: All workers accrue holiday entitlement, including those on zero-hours contracts. Failing to provide holiday pay is a breach of the Working Time Regulations.
• Calculating part-time entitlement incorrectly: Use the pro-rata formula (days per week × 5.6) rather than applying arbitrary reductions.
• Forgetting accrual during family leave: Annual leave continues to accrue during maternity, paternity, and shared parental leave.
• No termination clause in contracts: Without a contractual right to deduct overpaid holiday on termination, recovery can be difficult.

How Leavely Helps

Leavely automates holiday pay tracking so you can avoid costly errors:

• Automatic entitlement calculation: Leavely calculates entitlements for full-time, part-time, and irregular hours workers based on their contracted hours and work pattern.
• Accrual tracking: Real-time visibility into accrued, taken, pending, and remaining holiday for every employee.
• Termination calculations: When an employee leaves, Leavely calculates the exact number of accrued days and any balance owed or to be recovered.
• Leave year configuration: Set your leave year to any period (calendar year, April-March, or custom) and Leavely handles pro-rata calculations for joiners and leavers automatically.
• Audit-ready records: Maintain a complete history of leave taken, balances, and adjustments for compliance and payroll integration.