Holiday pay: information for employers
Most workers are legally entitled to paid holidays/annual leave. On this page, we look at the rules in more detail and explain how to calculate and pay holiday pay.
Content on this page:
A worker's statutory paid holiday entitlement is 5.6 weeks – this equates to 28 days for a worker working a five-day week. The 5.6 weeks is a minimum entitlement – you can choose to offer more. You must set out an employee's paid holiday entitlement in their contract (or written statement of terms and conditions of employment).
A worker's entitlement to paid annual leave starts on the first day of employment and is not subject to a minimum period of employment.
Employers are allowed to operate a holiday accrual system for workers who are in their first year of employment. In practice this means that a new worker will accrue one twelfth of their annual holiday entitlement each month they are employed. This will apply from the start of each month. So, if you take on a new full-time employee on 1 June 2023, after three month's work, they will have accrued 7 days leave (28 x 3/12).
If the worker’s employment ends (for example, because they have resigned or you have made them redundant), the worker is entitled to be paid for any leave entitlement that they have not taken. Entitlement for those who leave part way through a year is pro-rated to calendar days employed in the leave year, less entitlement already used.
The genuinely self-employed do not have the right to any minimum paid holiday entitlement – they can take as little or as much holiday as they choose. However, like the minimum wage and auto-enrolment, those that are considered ‘workers’ for employment law purposes do – see our page on employment law status for more information on workers.
Employees who don’t work full time
Paid holiday entitlement for part-time workers is calculated on a pro-rata basis. If, for example, your employee works three days a week, they are entitled to 16.8 days (28 days x 3/5).
|Days your employee works a week
|Days holiday they are entitled to
Where calculations result in part days, e.g. 16.8 days, it may be easier to round the entitlement up to the nearest full day or half day, if this is easier for you to administer (you cannot round it down). Alternatively, you could work the holiday out in hours, so in the case above, 0.8 of a day for someone working an eight-hour day, is 6 hours and 40 minutes – your employee could, for instance, come in to work for part of a day and then take the rest of the day off.
If your employee works on a casual basis or very irregular hours (for example, they are on a zero hours contract), one method of calculating paid leave for them is to calculate holiday entitlement on the basis of hours worked.
The holiday entitlement of 5.6 weeks is equivalent to 12.07% of hours worked over a year. This 12.07% figure is 5.6 weeks' holiday, divided by 46.4 weeks (being 52 weeks – 5.6 weeks). This method aims to ensure that casual or irregular workers build up holiday entitlement in the same proportion to hours worked as a standard worker. Note that this calculation has no statutory basis, however it is a widely used ‘rule of thumb’.
Holiday pay is a complex and ever-changing area of law. A 2019 Supreme Court case ruled that it was not correct to use the 12.07% method for a zero hour contract music teacher whose holiday pay at the end of each school term was calculated as 12.07% of her earnings in the previous term. The 12.07% method meant her holiday entitlement was prorated both for her irregular hours, but also on the basis that she only worked part of the year (term time). The Court said that this was incorrect and the teacher was entitled to 5.6 weeks leave at her average earnings, because she was employed for the entire year, even though she only worked for part of the year.
This case means some people may be entitled to more holiday than before. However, this judgement was made in the context of a ‘part-year’ worker only. Most workers are probably not part-year workers as they will not have significant numbers of weeks in a year where they are not working or not on leave – they are likely to be full year workers who just have irregular hours, rather than part-year workers.
Additionally, the judgement looks to be ‘reversed’ by the government who want to change the law to ensure that holiday entitlement for part-year and irregular hours workers is proportionate to the time they spend working. They propose to do this by essentially putting the 12.07% calculation on a statutory footing. Note, that until the proposals come into law, holiday entitlement for part-year workers should be calculated in line with the official position.
You can find more information about holiday entitlement and how it should be calculated for workers with irregular working patterns on GOV.UK. Guidance on how to calculate holiday pay for workers whose hours and / or pay are not fixed can also be found on GOV.UK. If you are unsure as to whether you are dealing with holiday correctly, you could seek further clarification from ACAS.
Dealing with bank holidays
Contrary to popular belief, you do not legally have to give your employee paid time off for bank/public holidays (unless their contract provides for this). However, you or your employee may choose to include bank/public holidays as part of their holiday entitlement, which will then reduce their remaining annual leave entitlement accordingly.
If you have a full-time employee, with 28 days holiday entitlement, who takes all the bank and public holidays off (typically 8 a year), this leaves them with 20 days' annual leave.
A common myth is that there is a right to extra pay for working on bank holidays – for example, time-and-a-half or double pay. This is incorrect – this would only be the case if their contract provides for this.
In recent times, there have been extra bank holidays – for the late Queen’s Jubilee and King's Coronation for example. To work out whether you need to give your worker the additional day, you have to look at what their contract says:
|What the contract states
|Treatment of additional bank holiday
|28 days – silent on bank holidays
|The additional day would have to come out of the 28 days
|20 days plus bank holidays
|An additional day would be due
|20 days plus 8 bank holidays
|Potentially due as part of the 8 days (however you would need to determine which other bank holiday would not be due – this would need to come out of the 20 days)
|20 days plus 8 bank holidays - specifically naming the days
|The additional day would not be due – would need to come out of the 20 days
Your employee must give you notice that they wish to take leave. You should agree the notice period with your employee and set this out in writing. If there is no agreement in place, they must give notice of at least twice the length of the intended leave period.
Please note that although you can refuse to grant leave at certain times, for example if it is not a convenient time for you, you cannot refuse to let your employee take the leave at all.
Employers can set times that workers are required to take leave. For example, you could tell your employee that they must take two weeks annual leave in the summer when you normally take your two weeks' holiday.
If you do not have an agreement for taking leave and you want your employee to take all or part of their holiday entitlement on certain dates, you must give notice of at least twice as long as the leave period.
Holiday if employee is off sick or on parental leave
Employees taking statutory parental leave like maternity, adoption, paternity and parental leave will continue to accrue paid holiday. They will also build up holiday entitlement while off work sick. However, if your employee is on statutory sick pay (SSP) and it is too little for them live on, one possibility is that they may ask to take annual leave rather than SSP. More information can be found on the ACAS website.
How much you should pay an employee when they take leave
If your employee has fixed hours and pay, they should be paid the same rate while they are on holiday as they are normally paid in their job. For example, if they usually get paid £300 for a weeks' work, they will still be paid £300 when they take a week off. If they only take a day off (and normally work five days a week), you would probably pay them around £60. The idea is that they shouldn’t be at financial detriment when on annual leave.
The payment will be due at the same time as your employee’s normal wages (for example, weekly/monthly) and will be treated as earnings for Pay As You Earn (PAYE) tax and National Insurance purposes.
If your employee's hours of work vary from week to week, the amount they will get will be based on the average amount they earned. Since 2020/21, holiday pay in England, Wales and Scotland is calculated based on their average pay rate in the preceding 52 weeks that they have worked, including regular bonuses, overtime, commission where relevant. If they have not been in employment for long enough to build up 52 weeks’ worth of pay data, you should use however many complete weeks of data you have. In Northern Ireland, it is based on average pay in previous 12 weeks.
Please note that employees must strictly receive their holiday pay at the time that leave is actually taken. It is currently technically unlawful to not pay someone while they are on holiday and pay them an extra amount as part of their wages or salary instead – a system known as rolled-up holiday pay, even though some employees might prefer that. The government is considering whether to allow employers to lawfully include an element of rolled-up holiday pay in irregular hour workers’ wages.
You can find basic information on holiday leave and pay on GOV.UK. There is also a tool on GOV.UK to help employers calculate their workers’ holiday entitlement.
You can find more information about holiday entitlement and how it should be calculated for workers with irregular working patterns here on GOV.UK. Guidance on how to calculate holiday pay for workers whose hours and/or pay are not fixed can also be found here on GOV.UK. This guidance should help workers to understand their rights and employers to understand their legal obligations. It includes several worked examples.
There is lots of information about holiday entitlement on the ACAS website.
Please be aware that disagreements and disputes over holidays and holiday pay are very common and can lead to problems such as a deterioration in your relationship with your employee or an increase in their sick leave. As such, you should make sure you try and understand the rules around their entitlements as far as possible and also set out your expectations around things like giving sufficient notice of leave clearly (ideally in writing), so you can avoid any problems later on.
If problems do arise, you could try and sort things out informally with your employee. If this doesn’t work, your employee could take you to an Employment Tribunal, although there are strict time limits for this.