How to calculate holiday pay correctly

Holiday pay is one of the highest-risk areas of UK payroll. Underpaying — typically by basing holiday pay on basic salary only, when "normal pay" is required — is now actively enforced by the Fair Work Agency.

Statutory entitlement

• 5.6 weeks per year — 28 days for a full-time worker including bank holidays.
• Pro-rated for part-time workers based on their normal working pattern.
• Workers (not just employees) are entitled — the entitlement extends to casual and zero-hours workers.

What must be included in holiday pay

Holiday pay must reflect normal pay — the average of what the worker normally earns, not basic pay alone. The position has been settled by EU and UK case law.

Must be included:

• Regular overtime — including voluntary overtime if it is sufficiently regular to be part of normal pay.
• Commission — where it is intrinsically linked to the performance of the work.
• Regular shift premiums.
• Travel allowances that are part of normal pay (rare — usually expenses are excluded).

Should NOT be included:

• Purely voluntary, irregular overtime.
• Genuine expenses (reimbursement of cost incurred).
• One-off bonuses unrelated to performance over the relevant period.

Calculation for irregular and part-year workers

Use a 52-week reference period ending on the start of the holiday. Calculate the worker's pay for each week worked in that period (weeks without pay are ignored, and you can look back further to find 52 weeks of paid weeks — up to a maximum 104-week look-back).

Add up the pay for those weeks, divide by 52, and that is the weekly holiday pay rate.

For workers paid monthly, calculate the equivalent.

Zero-hours and casual workers

For workers with no normal hours:

• Holiday accrues at 12.07% of hours actually worked.
• The 12.07% figure comes from the calculation 5.6 ÷ (52 − 5.6) = 0.1207, representing the holiday hours per working hour.
• Holiday pay is calculated using the 52-week reference period.

"Rolled-up" holiday pay (paying a percentage uplift on hourly rate instead of paid leave when taken) was banned for most workers but reintroduced for irregular-hours and part-year workers from April 2024. Where used, it must be itemised separately on the payslip.

Fair Work Agency enforcement

The FWA (launched April 2026) has specific powers to enforce holiday pay. Getting holiday pay calculation wrong — particularly for variable-hours staff — is now substantially higher risk than it was.

Typical patterns of failure include:

• Basing all holiday pay on basic pay only.
• Excluding regular overtime.
• Using the wrong reference period (e.g. a fixed 12 weeks instead of 52).
• Missing commission entirely.

Carry-over and untaken leave

Workers can carry over up to 8 days (the EU-derived portion that hasn't been taken because of sickness or family leave) to the next leave year. Unused statutory leave is not generally payable on termination except as holiday pay for the year-to-date.

Official source: GOV.UK — Holiday Entitlement and Pay.