Holiday pay calculations in the United Kingdom
Reviewed by Mellow Editorial Team, HR & payroll content team
Holiday pay in the UK must reflect a worker's normal pay, not just their basic salary. For most full-time employees working fixed hours, that means 5.6 weeks of paid leave per year — but calculating the correct rate is where many employers go wrong.
How much leave are employees entitled to?
The statutory minimum is 5.6 weeks per year, which equals 28 days for someone working a standard five-day week. That figure already includes bank holidays, so you can choose to count public holidays as part of the 5.6 weeks or offer them on top — but you must reach the 28-day minimum either way.
Part-time workers receive the same entitlement on a pro-rata basis. Someone working three days a week is entitled to 16.8 days (5.6 × 3).
There is no statutory upper cap, so your contracts can be more generous. Many employers offer 25 or 30 days plus bank holidays as a benefit.
What rate should holiday pay actually be?
This is where errors are most common. The rule is that holiday pay must reflect what the worker would normally earn — not just their contractual basic pay.
For employees with fixed hours and fixed pay, the calculation is straightforward: they receive their normal weekly wage for each week of leave taken.
For workers with variable pay, the position is more complex. Under UK law, holiday pay must include:
- Regular overtime — if a worker regularly works and is paid for overtime, that average must be included
- Regular commission — if commission is a consistent feature of pay, it counts
- Regular shift premiums — payments for working nights, weekends or other enhancements that are paid regularly
The mechanism for calculating this is a 52-week reference period. You look back at the last 52 weeks in which the worker was actually paid, discard any weeks where they earned nothing (through sickness or unpaid leave), and calculate an average weekly pay. That average becomes the holiday pay rate.
If a worker has been employed for fewer than 52 weeks, use the number of complete weeks they have worked.
How does this apply to irregular-hours and part-year workers?
Following the Supreme Court ruling in Harpur Trust v Brazel and subsequent legislative changes, irregular-hours and part-year workers on permanent contracts now have their holiday entitlement calculated differently to prevent distortion.
From the 2024 holiday year onward, these workers accrue holiday at 12.07% of hours worked in a pay period. Employers can choose to pay rolled-up holiday pay for these workers — adding the holiday element into each payslip rather than paying it when leave is taken. This must be shown as a separate, clearly identified amount on the payslip.
Rolled-up holiday pay is not permitted for workers with normal, regular hours. For those employees, holiday must be paid when leave is actually taken.
What about accrual during sick leave or family leave?
Employees continue to accrue statutory holiday entitlement during:
- Statutory sick leave — even extended absences
- Maternity, paternity, adoption and shared parental leave
- Other authorised absences
If an employee cannot take their leave because they have been on long-term sick leave, they have the right to carry over up to four weeks of unused statutory leave into the next leave year. Your contractual leave (the portion above the 4-week EU-derived element) can be governed by your own carry-over rules, provided they are clearly set out in the contract.
Termination and payment in lieu
When employment ends, any accrued but untaken statutory holiday must be paid out. You cannot require the employee to take it during a notice period unless you give the correct notice (double the length of leave you want them to take) and your contract allows it.
Payment in lieu of accrued holiday at termination is calculated using the same 52-week average pay method described above — not the basic daily rate unless that is the worker's true normal pay.
Getting this wrong is a common source of tribunal claims. Underpaying holiday pay, even by excluding regular overtime, can result in unlawful deduction from wages claims going back up to two years.
Keeping records
HMRC and employment tribunals both expect employers to keep clear records of leave taken, leave balances and how holiday pay rates were calculated. With the Employment Rights Act 2025 strengthening day-one rights and extending protections, accurate record-keeping is increasingly important. A clear audit trail — showing which weeks were included in the 52-week reference period, what was excluded and why — is your best protection if a calculation is ever challenged.
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