For salaried employees, dealing with holiday pay can be straightforward if they are paid the same amount each month and their annual leave entitlement is handled via the employer’s HR system. However, the position can get a bit more complicated where the employee works irregular hours, works overtime, or receives bonuses or commission as part of their work.

Holiday entitlement

Under the Working Time Regulations, all employees are entitled to receive 5.6 weeks of paid holidays each year, regardless of whether they work full time, part time or variable working hours each week. Employees will accrue their paid holiday entitlement (based on their working hours) whether they are working, on sick leave or are absent on maternity, paternity, adoption or shared parental leave.

Four weeks of their holiday entitlement must be paid at the employee’s ‘normal’ rate of pay and the remaining 1.6 weeks can be paid at their basic rate of pay. For some employees, these rates will be the same, but they will be different where an employee receives payments such as overtime, bonuses or commission on a regular basis that will not be part of their basic pay when they are on leave.

Some employees might receive paid leave for Bank Holidays over and above this, but an employer can choose to include Bank Holidays as part of an employee’s statutory annual leave. This will depend on what is included in their contract of employment.

Minimum holiday pay 

Since January 2024, employers must include payments such as overtime and commission in any holiday pay for the four-week part of their employees’ statutory paid holiday entitlement. Any additional payments that an employee would receive when working that take account of an employee’s personal circumstances such as their length of service, seniority or professional qualification must also be included. Other payments that may be part of an employee’s normal pay include call out allowances, shift premium payments, anti-social hours payments, weekend premium payments, travel time payments or any other regular payment that an employee would normally receive when they are working.

For the remaining 1.6 weeks, the employee does not have to be paid more than their basic salary. Although many employers might prefer to pay the additional elements to keep things more straightforward from an administrative perspective.

Regardless of what is included in an employee’s contract of employment, they cannot be paid less than the National Living Wage/National Minimum Wage when they are on leave.

Part-time employees and employees working irregular hours

Since April 2024, employers must follow a new accrual method to calculate an employee’s holiday entitlement where the employee works part time or works irregular hours. This is based on 12.07% of the actual hours worked in a pay period. This is based on the employee working 46.4 weeks per year, as 12.07% of 46.4 weeks is the 5.6 weeks statutory holiday entitlement.

This calculation needs to be based on the employee’s average pay over the last 52 weeks the employee has worked for the employer. For employees who have worked for less than 52 weeks, the employer should use whatever complete weeks of data that they have to work out their average.

Where the employee leaves before the end of the annual leave year

If an employee leaves part way through their annual leave year, the employer needs to pro-rate the employee’s annual entitlement for the proportion of the year that they have worked for the employer. The legislation states that a week starts on a Sunday and ends on a Saturday. Employers will generally take account of any over or under payments in the employee’s final payslip, although this will depend on what is agreed in the contract of employment.

Where to get help and advice

To help employers calculate an employee’s holiday entitlement, the government has developed a calculate holiday entitlement tool, which can be used whether the employee works for a full annual leave year or if they started or finished their employment during an annual leave year.

The Department for Business and Trade has also produced holiday pay guidance following the 2024 changes to the rules. ACAS publish holiday pay guidance that gives answers to commonly asked questions.

As employment law can be a complicated area, you may wish to consult a specialist in employment law if you need support in more complex cases.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.   

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