When it comes to employment rights in the UK, holiday pay remains one of the most misunderstood, and litigated, areas of the law, and it’s important for both employers and employees to stay informed.
How Holiday Pay Works:
Under the Working Time Regulations 1998, most workers in the UK are entitled to a minimum of 5.6 weeks’ paid holiday pay year. This works out to:
- 28 days for someone working a five-day week
- This can include bank holidays, depending on the employment contract (and indeed it is common for most “office-based” jobs to include such a clause).
Holiday pay should reflect what a worker would normally earn if they were at work. That’s where it starts to get complicated.
What Should Be Included in Holiday Pay:
Holiday pay was often based solely on basic pay, but court decisions in recent years have made it clear that regular additional pay elements must also be included. These may include:
- Regular overtime (even if it’s not guaranteed)
- Commission payments
- Shift allowances
- Bonuses that are intrinsically linked to the job
If these payments form a normal part of a worker’s earnings, they should be reflected in their holiday pay.
The thinking on this is simply; holiday pay should not be less than normal pay as otherwise an employee or worker would be disincentivised from taking the full entitlement as they would be financially worse off.
Recent Changes: Rolled-Up Holiday Pay and Calculations:
In 2024, the UK government confirmed that rolled-up holiday pay is now permitted for people who work part-year and irregular hours. This means employers can pay an enhanced hourly rate that includes holiday pay that includes holiday pay, but only if it’s clearly stated and itemised on the payslip. This is a positive change for sectors like hospitality and education, where hours can fluctuate.
Employers should now use a 52-week reference period to calculate average pay for workers with variable hours, replacing the old 12-week period. This gives a more accurate reflection of average earnings and prevents “holiday windfalls” or underpayments.
Key Risks for Employers:
Failing to get holiday pay right can lead to:
- Employment tribunal claims
- Backdated pay for up to 2 years
- Penalties and reputational damage
Tips for Employers:
- Review contracts and pay practices to ensure they reflect recent case law
- Make sure holiday pay includes regular extras like overtime and commission
- Be transparent – itemise rolled-up holiday pay clearly on payslips
- Use software or payroll systems that support accurate tracking and calculations
Employee Rights:
If you’re unsure whether you’re receiving the correct holiday pay, check:
- Your contract and payslips
- Whether any regular bonuses or overtime are being included
- How your employer calculates your average pay
If something seems off, consider raising it informally first or seeking advice from an experienced employment solicitor.
Getting holiday pay right isn’t just about legal compliance – it’s about building trust and fairness into your workplace culture. With clearer rules now in place, employers have a real opportunity to simplify their processes and avoid costly mistakes.
A comprehensive holiday policy is always advisable in this respect so that all parties know what to expect, when and how to request holiday, rules regarding carry -over as well as how it is calculated.
For employees, understanding how holiday pay should be calculated is a key part of asserting your rights and making sure you’re being treated fairly.
If you need legal advice on holiday pay, contact our experienced employment solicitor Ilinca Mardarescu on imardarescu@astonbond.co.uk or call the office to make an appointment on 01753 486 777.