Holidays are an important part of life. Getting away from it all and having fun is a vital to our mental wellbeing and allows us to recharge our batteries. But many people worry about how they will cope when they are away and whether their employer will pay them. 

For an employer, figuring out how to calculate holiday pay can be a nightmare. On top of this, understanding the rights and responsibilities of both workers and businesses is never easy.

This is where we come in. In this article, we will discuss what holiday pay actually is. We will also talk about the many rules that govern it. Let’s get started.

What is Holiday Pay?

Paid holiday is leave granted by an employer to employees that they receive pay to take. It is generally given so that staff can take holidays or complete various out of work tasks. An employee should receive the same amount of pay while taking a paid holiday as they would if they were at work.

How Much Paid Holiday Am I Entitled to By Law?

In simple terms, nearly all workers, except those who are self-employed, have an entitlement to 5.6 weeks’ paid holiday per year. The government sets this entitlement out in the Working Time Regulations 1998.

For a full-time employee who works 5 days a week, 5.6 weeks should equate to 28 days’ leave. This holiday entitlement will often include statutory days like bank and public holidays.

How Much Will I Be Paid When on Paid Leave?

This can depend on the number of hours you work and the type of contract you have. You should receive the same amount of pay whilst on leave as you would if you work. This is a statutory requirement set out in law. How an employee calculates this can differ based on the type of hours you work and the contract you have with them. This is especially true if you work irregular hours or shift patterns.

how to calculate holiday pay

How Do I Calculate Holiday Pay?

A week’s holiday pay is worked out according to the hours an employee works and how they receive their pay for these hours. These rules are generally the same for full-time, part-time, term-time and casual workers.

Fixed hours and fixed pay staff (either full or part-time)

Workers on fixed hours and fixed pay (that is, they work the same hours each week and receive the same pay) should receive a normal week’s pay when on holiday leave. This may or may not include subsidies for bonuses, overtime, etc depending on their contract and situation.

Shift work with fixed hours but variable pay (full or part-time)

Workers who work varying shifts that give variable pay need a different algorithm for working out holiday pay. For employees with this type of contract, an employer will normally average the number of weekly fixed hours a worker has completed in the previous 52 weeks. They will then multiply this by their average hourly rate.

No fixed hours (this can be casual work and includes zero-hours contracts)

Workers on zero-hour contracts or no fixed hours are still eligible for holiday pay. But with no fixed wage, employers will have to look at previous working patterns to work out pay. Employees with this type of contract will have their average pay from the previous 52 weeks paid to them. Employers will include only weeks where an employee received pay in these calculations.

Is Holiday Pay Calculated the Same for All Types of Employees?

As mentioned above, no. How an employee works out holiday pay is different depending on the type of contract they have. Generally, those on fixed hours contracts with fixed pay receive pay equivalent to their normal rate, as if they had worked. Those on variable shift patterns or contracts with no fixed hours will receive an average of the previous 52 weeks’ pay.

What if I Work Overtime, Receive Commission, Or Get Bonuses?

If you regularly receive paid overtime, commission or bonuses, your employer must include payments for these in at least 4 weeks of your paid holiday.

Some employers might include overtime, commission and bonus payments in your full 5.6 weeks’ paid holiday (statutory annual leave). There is, however, no legal requirement for them to do so. This is because the law on overtime, commission and bonus payments in relation to holiday pay fall under the EU Working Time Directive. This directive only covers 4 weeks’ of holiday pay in this way. Employers often used any days above over and above this for statutory bank or public holidays that do not qualify.

How Are Staff Who Receive An Hourly Pay Rate Handled?

Most workers will receive an hourly rate for the work they perform. This means if they work 30 hours per week, they will receive 30 times the hourly rate.

Calculating the holiday pay for an hourly paid worker is no different than calculating it for other workers. Because of this, the same rules apply. Workers who are on fixed hours and days each week will receive a normal level of pay when on leave. And those on shifts or irregular hours will receive an average of their previous 52 weeks’ pay.

What Does the UK Laws Prescribe For Holiday Pay?

As mentioned previously, the right to holiday pay is set out in the Working Time Regulations 1998. Every employee (unless they are self-employed) has an entitlement to 5.6 weeks’ paid leave each year. This can include the eight public and bank holidays.

It is a statutory requirement for employers to pay workers their standard level of pay when they are on paid leave. They may calculate this differently depending on the hours or shifts worked (for more details, see above).

In Conclusion

Holiday pay is a complicated subject and can lead to stress for both staff and employers. We hope that with a little help from this guide; you find navigating this tricky issue easier in the future.

Written by Siva

I write & describe the value & benefits delivered by Paperhift's rota planning, staff time tracking, and employee payroll management software. Especially useful for Shift Planners, Rota Managers, Team Admins, and HR Teams 🙂

Illustration by Polina Golubeva from Ouch!