How is Holiday Pay Calculated for Employees?

All workers in the UK are entitled to paid holiday. Whether they're casual or full-time workers, you must pay them correctly whilst they're on leave.

Failure to do so can lead to them raising a claim to an employment tribunal, leaving you with monetary damages to pay.

In this guide, we'll discuss how much holiday pay workers receive, how to calculate payments, and what happens to it when workers leave their job.

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What is holiday pay?

Holiday pay is a legal employment right for workers to take time off from their job. This time is used to take a holiday, see family, or simply have a break from work.

As an employer, you must understand your workers' right to paid holiday. As well as the amount of pay they'll receive whilst away from work.

You may be wondering if an employee should receive holiday pay if they're off sick - find out with our expert guide.

How long can workers take for holiday leave?

As per the Working Time Regulations 1998, holiday entitlement for workers in the UK are:

1. Full-time workers: 5.6 weeks (28 working days) for every 52 weeks.
2. Part-time workers: 5.6 weeks (28 working days) for every 52 weeks which needs to be less than 28 days. (For example, with four workdays, they must receive at least 22.4 days holiday=4 x 5.6).

Taking holiday is a legal entitlement for your workers. When they choose to take it is entirely up to them. This is known as statutory leave or annual leave. Bank holidays don't have to be included within a worker's paid leave entitlements.

How much holiday pay should a worker receive?

The amount of holiday pay received by a worker depends on whether they work the same hours. They may work fixed hours and get the same amount of pay each week. Or work on a shift pattern with different working hours.

Is holiday pay the same as normal pay?

You should provide the same pay to staff as they’d get during work–regardless of what they’re pattern is. Most employers pay workers the usual rate of their holiday entitlement.

What happens if you don't pay your workers the right amount of holiday pay?

Not paying holiday pay correctly is against employment law and should be avoided at all times.

For example, if holiday pay hasn't included overtime, the worker may look to claim this money back. If the issue isn't resolved, they may look to escalate the issue further to an employment tribunal.

What do you include in holiday pay?

You must understand what to include in your worker's holiday pay. Getting it wrong could lead to legal trouble in the future. You need to include:

• Salary or wages.
• Any regular overtime.
• Commission, or,
• Travel allowance, except actual expenses.

How to calculate holiday pay

When calculating holiday pay, you must remember employees should get paid the same amount to their daily wage. However, you can provide more through personal holiday pay schemes.

Holiday pay calculations are commonly based on:

• Working hours (casual or irregular).
• Days or hours worked per week.
• Shifts.

To pay a worker's holiday pay (whose hours vary each week), you need to calculate their average weekly pay.

Keep a record of their average number of hours worked per week. As this is vital to the calculation. The following steps will ensure you pay your holiday pay correctly:

1. Divide the total number of hours worked over a year by 52. This will provide you with the average number of hours worked.
2. Multiply the average number of hours worked per week by their hourly pay. This will provide you with your worker's week's pay on average.

You must understand a worker is legally entitled to holiday pay if their employment contract comes to an end.

Holiday pay for fixed-hours workers

If a worker is on fixed-hours (full-time or part-time) and has the same weekly schedule, they should receive their usual weekly pay.

For example, an employee earning £400 a week should be paid £400 for a week's holiday. This is also calculated against their average weekly hours in the last 52 weeks.

It's also important you understand how to calculate your workers' weekly pay to ensure their holiday is correct.

Holiday pay for casual workers

For casual workers on irregular hours (like a zero-hours contract), you calculate their pay over the previous 52 weeks–at their average hourly rate.

Only include the weeks in which they were paid. This is because their pay varies from time to time. If they haven’t done any work in the previous 52 weeks, you should refer to the last week they worked.

As an employer, you have a legal right to pay your workers correctly for their holiday. Not paying them the right amount is against employment law. This could lead to claims being raised against you, with compensation to pay.

Do you have to give holiday pay to workers leaving their job?

When a worker leaves their job, they must be paid for any holiday they haven't been able to take.

However, explain in employment contracts that unused holiday should be taken during their notice period. You may also be required to provide them with payment in lieu of notice. But this must comply with the legal requirements, too.

If a worker takes more holiday than they've accrued, they may be required to pay it back. This money would be taken from their final pay once they leave. This isn't a legal requirement, so if you choose to do this it should be included in your employment contracts.

Can workers carry over statutory leave until the next holiday year?

Due to the Covid-19 pandemic, workers were allowed to carry over any unused accrued annual leave into the next two holiday years.

Workers could carry over up to four weeks of unused leave. Be aware that this scheme will have an expiry date.

It's worth remembering that at the end of the year (usually in January to December or April to March), you should check how many days of holiday each employee has taken.

Get expert guidance on holiday pay with Peninsula

All workers are entitled to take time off work, and they must be paid the correct amount of holiday pay. As an employer, you have a legal requirement to ensure you pay the correct amount of money.

Failure to do so is against employment law and can lead to a breach of contract or an employment tribunal.

Peninsula offers expert guidance on holiday pay. Our team offers unlimited 24/7 HR advice which is available 365 days a year. Our HR department also provides advice through multi-lingual support and fully trained counsellors who are ready to help with any personal injury claims.

Want to find out more?Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.