Last reviewed 28 July 2022

In the UK, the minimum statutory requirement for paid holiday each year is 5.6 weeks — this can include public holidays and is capped at 28 days. There have been significant changes to the law surrounding holiday pay in recent years, with regulations now stating that regular overtime and commission payments need to be included.

Guidance

Holiday pay should be paid at the workers normal rate of pay — this means that regular overtime, bonus and commission that a worker would receive for time worked should be included in the calculation for holiday pay. This will also need to be used when an employee has no normal hours of work.

The reference period

From 6 April 2020, the reference period for calculating a week’s pay for annual leave purposes changed to a 52-week reference period. Previously, the reference period was only 12 weeks.

If the worker has not been in employment long enough to attract 52 weeks’ pay, then the reference period will be the corresponding number of weeks worked.

Employers are required to look back no more than two years (104 weeks) to obtain the relevant 52 weeks’ data. In the event the employer does not have 52 weeks’ data from the previous 104 weeks, then the reference period again becomes the corresponding number of weeks’ worth of data available.

The reference period must only include weeks for which the worker was actually paid. It must not include weeks where they were not paid as they did not work. This principle has not changed under new legislation.

The definition of a week

The relevant definitions within the Employment Rights Act 1996 are:

  • a week starts on a Sunday and ends on a Saturday (Employment Rights Act 1996, s.235(1))

  • the holiday pay reference period should start from the last complete working week that was worked ending on or before the first day of leave, starting on a Sunday and ending on a Saturday.

There is an exception for workers whose pay is calculated weekly by a week ending on a day other than Saturday. In these cases, a week is treated as ending with that other day.

For example, if a worker’s pay is calculated by a week ending with a Wednesday, then the employer should treat a week as starting on a Thursday and finishing on a Wednesday.

Salaried workers

Where a worker is paid a regular monthly salary, with fixed hours and fixed pay, there is no need to make a separate holiday pay calculation. The worker will be paid their normal monthly amount for months where holiday has been taken.

However, if pay varies, it will not be possible to use 12 months’ data as this will not truly correspond with the 52-week reference period for average weekly pay.

Employers will be required to use the number of hours worked in the relevant periods to exclude week’s where work may not have been undertaken and apply an average hourly rate of pay to this time.

Examples

Casual/variable hours worker

If an employee has been employed for a number of years on a variable-hours contract but has only worked 35 weeks in the previous 104 weeks, the pay received for all these 35 weeks is added together and this is the reference period.

Total pay received = £17,850 over 35 weeks.

Average weekly pay = £510 per week (£17,850 / 35).

Holiday taken should be paid at £510 per week.

As such, if an employee were to take two weeks’ holiday, they should be paid 2 x £510 = £1020.

Salaried workers

A full-time worker earns £2080 per month basic salary (for 40 hours per week at £12 per hour) but also earns commission at varying rates and has a total pay of £35,360 over the previous 52 weeks.

Total pay received = £35,360 over 52 weeks.

Hours per week = 40.

Hours worked in reference period = 2080.

Average hourly rate = £35,360 / 2080 = £17.

Average weekly pay = £680 (40 hours x £17 per hour).

Holiday taken should be paid at £680 per week.

This would make a month with one weeks leave equate to:

£2080 - £480 (basic rate of 40 hours x £12).

Plus £680 holiday pay.

= £2280 (plus any other commission due).