Calculating holiday pay for your staff: a guide

HMRC, auditors or your accountants might examine your holiday pay calculations in the course of reviewing your compliance processes. Making sure you are confident of your calculations can prevent risks during routine housekeeping or specific challenges from workers.

How is holiday pay calculated?

Most workers are entitled to 5.6 weeks’ paid holiday a year. To calculate a week’s pay, you need to look at how someone is paid and the kind of hours they worked e.g. full-time, part-time, term-time or casually.

Calculating holiday pay for irregular hours or zero hours contracts

Holiday pay must be calculated at the rate of "a week’s pay in respect of each week’s leave" which, for an employee with no normal working hours, will mean working out an average weekly pay based on the pay they received over the last 52 weeks actually worked - you must ignore periods when no work was carried out.

This means looking back prior to the date the employee takes their leave for up to 104 weeks to obtain the details for weeks actually worked. It also creates the potential for anomalies – for example, an employee who earns say, £500 for just one week's work under a permanent contract of employment, will have an entitlement to £2,800 of holiday pay (£500 x 5.6 weeks)!

Rolled-up holiday pay

Rolled-up holiday pay means including an amount for holiday pay in an employee’s hourly rate, spread over the year. It was made lawful again in 2024, but only for irregular-hours or part-year workers.

It is not possible to use rolled up holiday pay for regular-hours workers (full- or part- time).

For irregular-hours and part-year workers, rolled-up holiday pay can be used for annual leave years since 1 April 2024.

How we can help

Calculating holiday pay and remaining compliant has its challenges. We can help make sure that your historic policies do not risk underpayments to your employees.

Correctly implementing a rolled-up holiday pay policy is complicated. If your business fails to implement a compliant policy, it can cause unlawful employee underpayments with significant PAYE/NIC liabilities.

For help and advice on any holiday pay and employment tax issue please contact Caroline Harwood or Laurence Simms.