How to Calculate Holiday Pay in the UK (2025 Guide)

Holiday pay looks simple. Then someone mentions overtime.

Knowing how to calculate holiday pay feels like it should take five minutes. Someone's on holiday, you pay them what you'd normally pay them, done.

And for a lot of staff, it genuinely is that simple. The trouble starts the moment hours vary, or overtime creeps in, or you've got someone on a zero-hours contract and you're staring at the payroll wondering what on earth counts as a "normal" week for them.

This is the plain-English guide to getting it right. We'll keep the two big ideas separate (how much leave versus how much you pay for it), walk through the regular-hours case, then the variable-hours case, and clear up the bits that trip people up.

Hazel (our Chief Wellbeing Officer) gets paid in biscuits regardless of hours worked, which is technically the simplest holiday pay scheme we've ever run.

Quick Answer Box

• Do this: pay normal pay for holiday, use a 52-week average for variable hours, and include regular overtime and commission.
• Avoid this: confusing entitlement with pay, paying basic-only when overtime is regular, or using rolled-up pay for the wrong staff.
• Write down: how you calculate each person's holiday pay, especially anyone with variable hours or rolled-up pay.

First, the bit everyone muddles: entitlement is not pay

These are two different questions, and almost every holiday pay mistake starts with mixing them up.

• Entitlement is how much leave someone gets. The statutory minimum is 5.6 weeks a year. Working that out, especially for part-timers, is its own job, and we've covered it in detail here: how to calculate annual leave for part-time employees.
• Holiday pay is how much you pay them for the leave they take. That's what this guide is about.

Keep them in separate boxes in your head and most of the confusion disappears.

What the law says: a "week's pay"

Holiday pay is based on the idea of a "week's pay". When someone takes a week's holiday, they should get a week's pay. Simple in principle.

The complication is what counts as a "week's pay" when someone's pay isn't the same every week, and what has to be included in it. Case law has spent years answering that second question, and the short version is: holiday pay should reflect normal pay, not just basic contracted pay.

GOV guidance: calculate holiday pay for workers without fixed hours or pay

Regular hours and pay (the easy case)

If someone works the same hours for the same pay each week, holiday pay is straightforward:

• a week's holiday is paid as a normal week's pay
• a day's holiday is paid as a normal working day

No averaging, no spreadsheet gymnastics. Their normal pay is the holiday pay. Done.

Variable hours or pay (the 52-week average)

This is where most people get stuck. If hours or pay vary week to week, you can't just point at "a normal week" because there isn't one. So you work out an average.

The method is a 52-week average:

• look back over the previous 52 weeks in which the person was paid
• ignore any weeks where they got no pay at all (for example a week they did no work)
• if you hit unpaid weeks, keep looking further back, up to a maximum of 104 weeks, to find 52 paid weeks
• average the pay across those 52 paid weeks to get an average week's pay

That average week's pay is what you use for a week's holiday.

A short example

Imagine a zero-hours team member who works on and off through the year. Over the past 52 paid weeks their earnings vary a lot, and there were a few weeks with no work at all.

You skip the zero-pay weeks, count back until you've got 52 weeks where they actually earned something (going back up to 104 weeks if needed), add up the pay across those 52 weeks, and divide by 52. That gives you their average week's pay, which is what a week's holiday is worth for them.

Always check the current reference-period rules on gov.uk before you run a real calculation, as the figures are exactly the sort of thing that gets refined.

One thing that catches people out: the reference period is 52 paid weeks, not simply the last 52 calendar weeks. If someone had a long stretch of unpaid absence, you keep stepping back past those empty weeks until you've collected 52 weeks where money actually changed hands, subject to the 104-week ceiling. If you genuinely can't find 52 paid weeks within 104 weeks (say, a fairly new starter), you use however many paid weeks you do have. The whole point of the averaging is to land on a figure that reflects what this person normally earns, so it isn't distorted by a quiet fortnight or a bumper week of overtime.

What has to be included in holiday pay

This is the question that lands employers in tribunals. Holiday pay should reflect normal pay, which means more than just basic salary if the extras are regular. Generally you should include:

• regular overtime (even voluntary overtime, if it's worked regularly enough to count as normal)
• regular commission
• certain regular allowances and shift premiums tied to the work

The principle that came out of the courts is that someone shouldn't be financially worse off for taking holiday than for working. If a chunk of their normal earnings is overtime or commission and you only pay basic during holiday, they effectively lose money by taking leave, and that's what gets challenged.

One technical wrinkle to be aware of: the rules historically treated the first 4 weeks of statutory leave (which must be paid at normal pay) slightly differently from the remaining 1.6 weeks (which could be paid at basic pay). Many employers pay all 5.6 weeks at normal pay to keep things simple and fair. This split is an area that has seen reform, so confirm the current position before relying on a basic-rate calculation for part of the leave.

ACAS guidance: calculating holiday pay

Rolled-up holiday pay (back, but only for some workers)

Rolled-up holiday pay means adding holiday pay as a separate amount to each payslip, rather than paying it when leave is actually taken.

For years this was effectively off the table. Following the 2024 holiday reforms (for leave years starting on or after 1 April 2024) it is lawful again, but only for two groups:

• irregular-hours workers
• part-year workers

For those workers it's calculated at 12.07% of their pay for the hours worked in each pay period, and it must be shown separately on the payslip.

Important boundaries:

• you cannot use rolled-up holiday pay for staff on normal fixed hours and patterns
• 12.07% is the figure tied to the statutory 5.6 weeks; if you offer more leave than the minimum, the percentage changes
• even with rolled-up pay, people should still be encouraged to actually take their holiday

We go deeper on the 12.07% method and how it differs from entitlement in the part-time annual leave guide.

ACAS guidance: rolled-up holiday pay

Bank holidays and holiday pay

Bank holidays are a common source of confusion, because they sit at the awkward join between entitlement and pay. There is no automatic legal right to take bank holidays off, and no automatic right to extra pay for working one. Whether a bank holiday is paid leave, an ordinary working day, or a day off comes down to the contract.

For pay purposes, the thing to hold onto is this: if a bank holiday is being taken as part of someone's statutory leave, it's paid the same way as any other day of that leave, a normal day's pay for regular staff, or a day at the averaged rate for variable-hours staff. Problems appear when a contract says "20 days plus bank holidays" and then someone works a pattern that doesn't neatly include every bank holiday. If that's you, the cleanest fix is usually to express everything in hours and pro-rata it, which we walk through in the part-time annual leave guide.

Holiday pay when someone leaves

The final payslip is where holiday pay errors get expensive, because a leaver has every reason to check the maths and, increasingly, the tools to challenge it.

When someone leaves, you owe them pay for any statutory leave they've accrued but not yet taken. The calculation is the same one you've used all along, entitlement first (how many days they'd built up by their leaving date), then pay (valued at their normal week's pay, or the 52-week average for variable hours). If they've taken more leave than they'd accrued by the time they go, you can usually only recover the overpayment if the contract specifically allows it, so that clause earns its keep.

Two quick pointers. Payment in lieu of untaken holiday on termination is one of the few times it's fine to pay out statutory leave as cash rather than time off. And getting the accrual fraction slightly wrong, or forgetting a carried-over day, is one of the most common triggers for an ex-employee dispute, so it's worth double-checking a leaver's balance rather than eyeballing it.

Common mistakes (and the fix)

• Mistake: confusing entitlement with pay.

- Fix: work out how much leave first, then how much to pay for it, separately.

• Mistake: paying basic only when overtime or commission is regular.

- Fix: include regular overtime, commission, and allowances as normal pay.

• Mistake: using a fixed "normal week" for variable-hours staff.

- Fix: use the 52-week average, ignoring weeks with no pay.

• Mistake: counting zero-pay weeks in the average.

- Fix: skip them and look back further (up to 104 weeks) to reach 52 paid weeks.

• Mistake: using rolled-up holiday pay for fixed-hours staff.

- Fix: rolled-up pay is only for irregular-hours and part-year workers.

• Mistake: rolled-up pay buried in the hourly rate.

- Fix: show it as a separate line on the payslip.

• Mistake: getting a leaver's final holiday pay wrong.

- Fix: recalculate accrued-but-untaken leave to the leaving date, and value it at normal or averaged pay.

• Mistake: assuming bank holidays are always separate, paid extras.

- Fix: check the contract, and treat a bank holiday taken as leave like any other day of that leave.

What to write down

For each person, be clear about:

• whether their hours and pay are regular or variable
• which method you use (normal week's pay, or the 52-week average)
• what counts as normal pay for them (overtime, commission, allowances)
• whether you use rolled-up holiday pay, and that it's shown separately
• the calculation itself, so you can show your working if it's ever questioned

Holiday pay disputes can reach back over previous pay, so being able to show how you arrived at a figure is genuinely worth the few minutes it takes to note it down.

Bottom line

• entitlement is how much leave; holiday pay is what you pay for it. Keep them separate
• regular hours and pay: just pay a normal week's pay
• variable hours: use a 52-week average, ignoring weeks with no pay
• include regular overtime, commission, and allowances as normal pay
• rolled-up holiday pay is allowed again, but only for irregular-hours and part-year workers, at 12.07% shown separately

Right, what do you do now?

If you've got variable-hours or zero-hours staff and you're not fully confident your holiday pay is right, that's exactly the sort of thing worth checking before someone else does.

We pick this up as part of an HR Health Check, alongside your contracts and pay practices.

Book your HR Health Check here: Free HR Health Check

Or book a discovery call if you'd rather talk through a specific case first.