How to calculate holiday pay

Time off from work is essential for keeping your team happy and healthy.

Annual leave allows workers to rest and recharge. It can make people more motivated, reduce workplace stress and help to prevent burnout.

That’s why employment law entitles all workers in the UK to 5.6 weeks of leave each year.

Employers are required to provide holiday pay to make sure that workers are willing and able to take time off.

The amount of holiday pay you need to provide depends on their working hours and contract type.

In this guide, we’ll cover how to calculate holiday pay for UK workers in different types of employment.

The holiday entitlement for part time workers depends on the number of days they work.

What is holiday pay?

Holiday pay refers to the rate of pay a worker receives during their annual leave.

The Working Time Regulations state that worker’s annual leave entitlement should be paid. This makes sure that workers aren’t missing out on income for taking time off.

The rate at which you pay depends on the worker’s regular hours and should be calculated for each person.

How do you calculate holiday pay?

Calculating a worker’s holiday pay depends on their regular pay.

For each week of annual leave taken, law entitles workers to a week’s pay at their normal rate.

This is easy to work out for those on fixed hours and pay, for example, full time employees. Their holiday pay would be the same as what they earn in the same period while working.

The calculations are more complex for those on variable hours.

How to calculate holiday pay for variable hours

There are many different types of employment contracts that would be considered variable hours, such as:

• Workers who work regular overtime.
• Workers on different shift patterns.
• Agency workers with different rights and entitlements.
• Workers on zero hours contracts.

Although the main difference between holiday pay calculations is whether it’s a fixed hours or variable hours contract, there are different things to keep in mind for workers on these types of contracts.

How to calculate holiday pay for shift workers

There’s a lot of opportunity to make mistakes when calculating holiday pay for shift workers. This is because of the different ways you can organise shifts.

Shifts can be different lengths, on different days, and people can work different hours each week.

You can’t work out holiday entitlements based on a standard week, because shift patterns often aren’t aligned to a week. Instead, you need to establish what an average work week looks like.

Take the average hours and pay worked over the last 52 weeks to calculate their average weekly pay.

A ‘week’ should run from Sunday to Saturday unless you calculate the worker’s pay using a different 7-day period.

The government made changes to holiday pay calculations for shift work in April 2020. Before that time, we based holiday pay for shift work on an average for 12 weeks instead of 52 weeks.

How is holiday pay calculated for agency workers?

Law entitles agency workers, short contract, and other temporary staff to holiday pay.

They should accrue holiday entitlement the same as permanent workers. The rate of holiday pay will depend on the hours worked - either using the full time fixed hours calculation or the average holiday pay calculation for variable hours.

You’ll need to pay for any untaken holiday if a temporary worker doesn’t use their full entitlement before they leave employment.

How to calculate holiday pay for zero hours contracts

Calculating holiday pay for zero hours workers is like the approach for shift workers.

You should base holiday pay for casual workers on the average pay they’ve received over the previous 52 weeks worked.

The calculation must include the last 52 weeks where they earned and exclude weeks where they didn’t. You can go back 104 weeks to make sure the average includes 52 working weeks.

You should average the earnings for the number of weeks where they earned if there aren’t 52 working weeks in the 104 week period.

How do you calculate accrued holiday pay?

The Working Time Regulations entitles all workers to the UK statutory leave of 5.6 weeks a year. However, you decide how time off is allocated.

You can choose to use a holiday accrual system instead of allocating the full leave allowance upfront.

Holiday accrual means workers annual leave allowance becomes available to them gradually during the first year of employment. This ensures people don’t take a year's worth of paid holiday and then leave the role.

You’ll need to know how accrued holiday pay is calculated if you use this system.

The holiday pay accrual calculation is simple. Take the relevant calculation, either regular or variable hours, and divide their holiday allowance by the length of time employed.

For example, if you have employed a worker for six months, they would have built up half of their annual leave entitlement.

As workers accrue annual leave right up to the end of the year, some workers might end up with unused leave. You need to make sure your staff know what will happen if they don’t use their time off.

You will also need to pay for unused holidays when an employee leaves your business.

How to calculate holiday pay including overtime

A worker might be on a fixed hours contract, but you might need to consider overtime in their holiday pay.

The Working Time Regulations outline that holiday pay should mirror the amount that a worker usually receives. And if you offer regular overtime, it should factor into your calculations.

We’ve explained the different types of overtime and the holiday pay calculation for overtime here.

Calculating holiday pay on termination

Terminated workers are entitled to be paid in lieu of any accrued annual leave they haven’t taken.

You’ll need to know how to calculate holiday pay owed and the amount of accrued annual leave up to the date of termination, including their notice period.

The formula for calculating this payment is (A x B) - C, where:

• A is the total annual holiday entitlement.
• B is the fraction of the year up to the termination date.
• C is the amount of holiday already taken.

This will leave you with the amount of annual leave the worker has accrued but not taken.

Then use the relevant holiday pay calculation for either fixed or variable hours to work out what you owe.

Get help with holiday pay today with BrightHR

Law entitles your workers to paid time off, and it’s up to you to make sure they’re paid the right amount.

With complicated calculations and different rules for employment type and each worker’s individual holiday entitlement, it’s easy to make mistakes.

Get BrightHR’s staff holiday planner to help you simplify the process by keeping track of everybody’s leave entitlement and recalculating as soon as something changes. Book a free demo today to see how easy managing your HR can be. Give us a call on 0800 783 2806.

Frequently Asked Questions about Calculating Holiday Pay

Our clients ask a lot of questions about calculating holiday pay. We’ve answered some of the most common ones below.

Not found an answer to your question? Bright Lightning answers thousands of employment questions in seconds.

How do I calculate holiday pay based on hours worked?

You can calculate holiday pay by multiplying the number of hours an employee works per week, by 5.6, the annual statutory entitlement.

Only apply 5.6 if an employee is eligible for the statutory minimum entitlement. There may be multiplier changes if an employer offers more than 28 days per year.

If your business has no fixed hours, your holiday pay will be based on the average pay you’ve received over the last 52 weeks.