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Holiday Pay in UK: How to Calculate it, Laws, Common Questions

6 min read
holiday pay

We all need to take time off work from time to time. As an employer, you should encourage a healthy work-life balance for your employees. This means ensuring that they receive statutory holiday pay and their full holiday entitlement. Failure to do this could lead to burnout and a high staff turnover rate.

In this article, we will explain the rules around paid holidays in the UK, who is entitled to holiday pay, how to calculate it, the rules regarding holiday pay and overtime, carryover holiday, commonly asked questions, and how HR software can help you to manage the entire process.

What is Holiday Pay in UK?

Holiday pay is compensation that an employer offers to workers during annual leave. Employees who work a set amount of hours per week are legally entitled to get paid the same amount as they would during their average working week.

The following UK employees are entitled to paid holiday:

  • Full-time workers.
  • Part-time workers.
  • Workers under a zero hours contract.

How Do You Calculate Holiday Pay in UK and Full Holiday Entitlement?

Holiday entitlement in the UK is governed by the Working Time Regulations 1998. Full-time workers are usually entitled to a minimum of 5.6 weeks paid leave (28 days) per year, which includes bank holidays. Part-time workers are also entitled to a proportionate amount of paid leave based on the number of hours they work.

Calculating holiday pay can vary depending on the individual’s employment status and the terms of their contract. There are two main methods for calculating holiday pay:

  1. Basic Salary: For employees with fixed or regular hours and salaries, calculating holiday pay is relatively straightforward. Holiday pay is usually equivalent to the employee’s basic salary.
  2. Variable Pay: For employees with irregular working hours or who receive additional payments, such as overtime, commissions, or shift allowances, holiday pay can be more complex. In these cases, holiday pay should reflect an average of the employee’s earnings over a specified reference period such as average weekly pay. Employers usually use the last 52 weeks to work out this sum (according to the government guidelines).
    Working pattern      How a week’s pay is calculated
Fixed hours and fixed pay (full- or part-time) A worker’s pay for a week
Shift work with fixed hours (full- or part-time) The average number of weekly fixed hours a worker has worked in the previous 52 weeks, at their average hourly rate
No fixed hours (casual work, including zero-hours contracts) A worker’s average pay from the previous 52 weeks (only counting weeks in which they were paid)


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Holiday Pay in UK and Overtime Rules

Overtime pay can be a significant factor when determining holiday pay. The UK’s employment law stipulates that holiday pay should include not only an employee’s basic salary but also any regular overtime that they usually work. This ensures that employees are not financially penalised for taking time off work.

The rules governing holiday pay and overtime can be summarised as follows:

  • Guaranteed Overtime: If an employee has guaranteed overtime as part of their contract, the overtime payments should be included in their holiday pay calculation.
  • Non-Guaranteed Overtime: Non-guaranteed overtime refers to additional hours an employee may be required to work but is not contractually obliged to do so. Recent legal decisions have established that non-guaranteed overtime should also be factored into holiday pay calculations.
  • Voluntary Overtime: Voluntary overtime, where an employee chooses to work additional hours, does not need to be included in holiday pay calculations. However, employers may choose to include it as part of their remuneration policy.

What is a Holiday Pay Policy?

A holiday policy is usually created to ensure transparency and clarity between the HR team and employees. Your company holiday pay policy should clearly how much holiday your employees are entitled to and how much pay they’ll receive, as well as any blocked periods.

Bank Holidays

As an employer, it’s up to you to decide whether or not your employees must work on bank holidays. If your place of work is closed on bank holidays, your employer can legally make you take them as part of your holiday entitlement.

Some employers choose to give their employees bank holidays off paid in addition to their annual leave entitlement. Again, this information should also be outlined in your employment contract.

Commonly Asked Questions about Holiday Pay in the UK

Can an employer refuse to pay holiday pay?

No, employers are legally obligated to pay employees for their annual leave. Failure to do so may result in claims for unlawful deduction of wages.

Can holiday entitlement be carried over to the next year?

In general, statutory holiday entitlement cannot be carried over to the next year, except in certain circumstances, such as when an employee is unable to take leave due to illness or maternity leave. However, employers may have their own policies allowing for the carryover of leave, also known as carryover holiday. Only 1 in 5 UK employees get paid for unused annual leave, so it’s important to plan time off across the year efficiently to avoid missing out.

Statutory paid holiday being taken

Are part-time workers entitled to the same holiday pay as full-time workers?

Yes, part-time workers are entitled to a proportionate amount of holiday pay based on the number of hours they work. This ensures that part-time employees receive fair treatment.

Can an employer set specific dates for employees to take their annual leave?

Yes, employers have the right to determine when employees take their annual leave. However, they must consider the employee’s needs and make reasonable accommodations.

Can employers force employees to take holidays?

You can tell your employee when they can and cannot take paid annual leave. For example, you may choose to close your organisation during a period of the year and therefore, your employees must use their annual leave entitlement during this time.

Alternatively, there may be busier periods of the year, when they are not allowed to take leave. This is also something that should be written in your policy. But remember, you must allow your employees to take their annual leave at some point.

Can an employer pay employees in lieu of taking annual leave?

Employers are generally not permitted to pay employees in lieu of taking their annual leave, except in certain circumstances such as termination of employment.

What is ‘rolled up holiday pay’?

Rolled up holiday pay is when an employer includes an additional sum of money along with your usual hourly pay rate. This extra sum is meant to be paid instead of you taking time off. In the UK, employers are not allowed to pay rolled up holiday pay meaning any contracts including this need to be renegotiated by law.

How many days of holiday pay are UK employees entitles to?

The amount of days/hours of paid time-off that an employee is entitled to depends on the employee’s contract. As an employer, you can choose to give employees more time off than the UK statutory entitlement, but never below. It’s important to make this clear within your employment contract. Clearly stating how many paid days off your employees are entitled to.

How much notice should an employee give for annual leave?

As stated on the government website, the notice period for taking annual leave should be twice as long as the amount of leave an employee wants to take, plus 1 day. For example, an employee should give at least 3 days’ notice for 1 day off.

As an employer, you can legally refuse or cancel a leave request but you must also give the employee the same notice as the employee. For example, an employer would need to give 11 days’ notice if the employee asked for 10 days’ leave.

On the other hand, if the contract says something different about the notice a worker or employer should give, then you must stick to whatever is stated in the contract.

holiday pay calculator

Holiday Pay Entitlement and Employees Leaving a Job

When an employee leaves their job, you must pay them for any holidays they have been unable to take during their holiday year. Alternatively, you can force your employees to take their unused holidays, during their notice period. As we mentioned, this is something that needs to be written within your contract terms.

Employees Who Leave Without Notice

Your workers are entitled to be paid for the hours they worked up until they leave. It’s unlawful to withhold holiday pay from workers who don’t work their entire notice period. Although, if this is clearly stated in their employment contract, you can legally make deductions from their pay.

Managing Paid Holiday with Factorial

The best way to effectively manage employee time-off requests and paid holiday is by using the right tools and software. This can help you streamline the process so that time-off requests can be easily submitted and approved in line with employee schedules and your anticipated workload.

With Factorial’s time-off management software you can create your time-off and holiday pay policy directly on the platform so that your staff can access it at all times. That way, your employees know exactly what they need to do when they want to request vacations.

They can submit a request through the employee portal, and it gets sent directly to the right person for approval. You can also create blocked periods so that employees cannot request days off during busy times, reducing the time you need to spend rejecting requests that you cannot accommodate.

Here are a few other benefits of using Factorial’s time-off management software:

  • Automate vacation requests.
  • See vacation days accrued, used, and remaining.
  • Use the calendar to review upcoming employee absences with ease.
  • View all upcoming sick leave, vacation days, and other types of leave at a glance.
  • Track vacations to make sure each team is adequately staffed.
  • Implement vacation policies for the whole business or for different teams.
  • Set permissions to determine which supervisors will need to approve absence requests.
  • Generate custom reports.
  • Set the amount of paid time off that carries over from one year to the next.

Emma is a Content Writer with 5 years of Marketing experience. She specialises in HR strategy and modern workplace trends. When she's not writing, she's running by the beach or cooking Italian food.

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