With most of our clients, we receive instructions to pay X hours’ holiday, or, where the employees are salaried perhaps not even told when they are on holiday.

Recent changes to holiday pay calculations mean that (if you want us to calculate the holiday pay rates for you) this is no longer sufficient.

Rules introduced this year mean that where employees receive “irregular amounts” in respect of their earnings, their holiday pay should be calculated based on the average of the last 52 weeks’ earnings.

This is not just for zero-hour or variable-hour contract employees but also for employees who receive commissions, performance-related bonuses or regular overtime.

In any of these cases, the employee’s holiday pay should not see them penalised for not working and so the amount they are paid, for say a week’s holiday, should be the average of their last 52 weeks, excluding any holiday (at a non-average rate), sick pay or other absence.  In those cases, we need to go back further to get 52 good weeks data.

Unfortunately, this makes calculating an exact figure an almost impossible task (for example with monthly paid employees it would matter when in the month they took their holiday) but we have developed a system to calculate a reasonable approximation of this value.

The alternative system the government introduced this year is to pay all employees 12.07 per cent more when they are working and then pay them nothing when they are on holiday. 

This isn’t available for salaried employees but for zero hours and variable hours, this can sometimes be more attractive.

If you would like us to start calculating this for you rather than doing it yourself then please reach out to your usual payroll contact, letting us know which basis you would like to use. We will then issue an appropriate change to our terms and provide you with a quote for the work.

Alternatively, if you would rather make the calculation yourself or believe that no calculation is required for your staff, you can continue to supply us with the rate you would like to use when processing holiday pay and we will use this instead.

We have created a flowchart here to help you identify which rate is needed.

If you would like more information on calculating this please see the links below.

ACAS – Calculating holiday pay – Holiday entitlement – Acas
HMRC – January 2024 Reforms – Holiday pay and entitlement reforms from 1 January 2024 – GOV.UK (www.gov.uk)
HMRC – Calculating holiday pay for workers without fixed hours or pay – GOV.UK (www.gov.uk)