Skip to main content

From 6 January 2024, the main rate of class 1 National Insurance contributions (NIC) deducted from employees’ wages is reduced from 12% to 10%. From 6 April 2024, the main rate of self-employed class 4 NIC will reduce from 9% to 8% and class 2 NIC will no longer be due. Those with profits below £6,725 a year can continue to pay class 2 NIC to keep their entitlement to certain state benefits. Our guidance will be updated in full in spring 2024.

Updated on 6 April 2023

Holiday pay

All workers who are classified as employees or ‘workers’ are entitled to holiday leave and holiday pay. We understand that there is often confusion around what exactly workers are entitled to, so here we give you a run down on the basics of holiday leave and pay.  

Content on this page:

Basics

The starting point is that full-time workers (those working a five-day week) have the right to a minimum of 5.6 weeks’ paid leave per leave year. This works out at 28 days. The 5.6 weeks is a minimum entitlement – you can be offered more. This must be set out in your contract.

Your 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 start a new job on 1 June 2023, after three month's work, you will have accrued 7 days leave (28 x 3/12).

If your employment ends (for example, because you have resigned or have been made redundant), you are entitled to be paid for any leave entitlement that you have accrued but not taken. You can find guidance on how this will be dealt with through the payroll (which depends on whether it is paid before your P45 is issued or after), on our page on Redundancy

The genuinely  self-employed do not have the right to any minimum paid holiday entitlement. However, like the minimum wage and auto-enrolment, those that are considered ‘workers’ for employment law purposes do – see our page on Employment rights for more information on ‘workers’.

Part-time workers

The entitlement for part-time workers is calculated on a pro-rata basis. So if you work three days a week, you are entitled to 16.8 days (28 days x 3/5).

Days your employee works a week Days holiday you are entitled to
1 5.6
2 11.2
3 16.8
4 22.4
5 28


If you work on a casual basis or very irregular hours (for example, you are on a zero-hours contract), one method employers use to calculate paid leave is to calculate holiday entitlement on the basis of hours worked.

The holiday entitlement of 5.6 weeks is equivalent to 12.07 per cent of hours worked over a year (the 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, but it is a widely used ‘rule of thumb’.

We give an example of how holiday pay might be dealt with for a zero-hours worker on our Care workers page. We also have specific guidance if you are an agency or umbrella company worker.

Holiday pay is a complex and ever-changing area of law. A recent 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 is 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.

Practicalities

Contrary to popular belief, you do not have to be given paid time off for bank and public holidays (unless your contract provides for this). However, where you are not, you may be able to arrange with your employer to take such days off as part of your holiday entitlement.

Another 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 your contract provides for this.

You must give your employer notice when you want to take leave. If there is no alternative agreement in place, you must give notice of at least twice the length of the intended leave period.

Similarly, as long as they give you the proper notice, your employer is also able to fix some or all of your holidays for you, for example to operate a Christmas shutdown.

Holiday pay

If you have fixed hours and pay, you should be paid the same rate while you are on holiday as you are normally paid in your job. For example, if you usually get paid £400 for a weeks' work, you should still be paid £400 when you take a week off. If you only take a day off (and normally work five days a week), you would probably get paid £80. The idea is that you shouldn’t be at financial detriment when on annual leave.

If your hours of work vary from week to week, the amount you should get will be based on the average amount you earned. Since 2020/21, holiday pay in England, Wales and Scotland is calculated based on your average pay rate in the preceding 52 weeks that you have worked, including regular bonuses, overtime, commission where relevant. If you have not been in employment for long enough to build up 52 weeks’ worth of pay data, your employer should use however many complete weeks of data you have. In Northern Ireland, it is based on average pay in the previous 12 weeks.

The payment will be due at the same time as your normal wages (for example, weekly/monthly) and will be treated as earnings for pay as you earn (PAYE) tax and National Insurance contributions (NIC) purposes.

Please note that strictly, you should receive your holiday pay at the time that leave is actually taken. It is unlawful for employers 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 many workers would prefer that.

Payment of arrears

Holiday pay can be very complex for employers to deal with and sometimes mistakes happen. If your employer has not been dealing with your holiday pay correctly, they may have to pay you some arrears. The taxation of pay arrears is quite confusing – the treatment depends on why the arrears have arisen.

Very broadly, if they have arisen because there has been a breach of employment law (for example, the standard holiday pay rules, minimum wage rules, or equal pay rules) then HMRC guidance confirms that the tax is due on the arrears in the year of entitlement not the year of payment. This means that your holiday pay arrears should be allocated back to the tax year to which they relate and you should pay tax on them as if they were paid to you in that year.

If you think your employer has not taxed your arrears correctly, you should contact HMRC National Insurance Contributions and Employer Office at HMRC, BX9 1AS (note this is the extent of the address) to ask them to assess the arrears on the proper basis. You should provide them with all of the background information you have, details of the amount received and when (and the amount of PAYE tax deducted) and draw their attention to the guidance in the PAYE manual above. Please note that the rules are a bit different for NIC – it is calculated on the basis of the year the payment is made only: it is not related back to prior years.

The situation would be different if, for example, you successfully negotiated an ‘ex gratia’ (or voluntary) pay rise which is then backdated. As there was no legal obligation for your employer to give you the pay rise in the first place, the amount would be fully taxable in the year you receive it, rather than in any earlier tax years.

More information

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 worker’s holiday entitlement, which workers may find helpful.

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. 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.

If problems do arise, you could try and sort things out informally with your employer. If this doesn’t work, as there isn’t really any state enforcement of holiday pay, your only real option is to take your employer to an Employment Tribunal, although there are strict time limits for this.

Back to top