Holiday Pay in Great Britain: Entitlement, Rate Calculation, and the April 2024 Changes

UK statutory holiday pay is an area where the headline rule of 5.6 weeks of paid annual leave per year is straightforward, but the rate at which that leave must be paid is more involved. A series of Employment Tribunal and Court of Appeal decisions over the past decade established that holiday pay must reflect what employees normally earn, not just their basic salary. Many employers had historically paid holidays at basic salary only, which was straightforward to calculate, but unlawful for any employee who regularly earned more than that through overtime, commission, or similar payments. The courts held that an employee should not be financially worse off for taking leave than for working, which means the holiday pay rate must reflect their typical total earnings. The April 2024 regulations also introduced new rules for workers with variable or irregular hours, changing how both entitlement accrues and how it is paid.

This post covers how holiday pay works across the main worker types, what "normal remuneration" means in practice, the April 2024 rules for irregular and part-year workers, and how Intermezzo handles it through our API. We describe the law in Great Britain: England, Wales, and Scotland. Northern Ireland has its own working time legislation and differs on 2 points covered below: the reference period for calculating holiday pay remains 12 weeks rather than 52, and the 12.07% accrual method and rolled-up holiday pay introduced in April 2024 don't apply as rolled-up holiday pay remains unlawful in Northern Ireland.

The two-tier leave structure

The UK's 5.6 weeks of statutory annual leave is not a single uniform entitlement. It consists of two tiers with different pay rate requirements:

Four weeks (Regulation 13 leave), derived from the EU Working Time Directive, must be paid at the worker's normal remuneration as set out in the case law below.

An additional 1.6 weeks (Regulation 13A leave), a UK-specific addition, must be paid at the rate of a week's pay as defined in the Employment Rights Act 1996. For workers with normal working hours, this is broadly their contractual weekly pay — a lower floor than the normal remuneration standard that applies to the four-week portion, and one that does not require overtime or commission to be included.

In practice, most employers pay the full 5.6 weeks at a single higher rate to avoid having to track which portion of leave is taken at any given time, but the legal minimum for the additional 1.6 weeks is lower.

What "normal remuneration" means in practice

This is the area of greatest exposure for employers and the greatest complexity for payroll engines.

The principle that holiday pay must reflect normal remuneration, not just base salary, was established by a series of cases that progressively widened the definition of what must be included:

Lock v British Gas (2016) confirmed that commission must also be treated as part of normal remuneration. Where a worker earns commission that is intrinsically linked to the performance of their contracted duties, that commission must be reflected in the holiday pay rate.

Flowers v East of England Ambulance Service (2019) extended the principle to voluntary overtime — overtime the employer has no right to require — where that overtime is sufficiently regular and settled to constitute part of the worker's normal pay pattern.

Agnew v Police Service Northern Ireland (2023) fundamentally changed the risk profile for employers regarding historical holiday pay. The Supreme Court ruled that a gap of more than three months between underpayments does not automatically break a "series of deductions." The case was decided under Northern Ireland's equivalent legislation, but because the statutory wording is materially identical to Great Britain's, the reasoning is expected to apply UK-wide. In Great Britain, the practical impact is capped by the two-year backstop on unlawful deduction claims (the Deduction from Wages (Limitation) Regulations 2014); Northern Ireland has no equivalent limit, which is why exposure there is significantly larger. For payroll platforms and employers, this significantly increases the historical financial exposure if the system calculates the holiday pay rate incorrectly over successive periods.

The practical result is that holiday pay for Regulation 13 leave must include: basic salary, non-guaranteed overtime worked with sufficient regularity, voluntary overtime worked with sufficient regularity, regular commission, regularly paid allowances intrinsically linked to the work performed, payments related to professional or personal status (such as length of service increments or qualifications-based pay), and certain other variable pay elements that form part of normal remuneration. Purely discretionary bonuses and genuinely one-off payments are excluded.

"Sufficiently regular" is not defined in statute and remains a facts-based assessment. The 52-week reference period is the calculation mechanism — the average weekly earnings across the 52 paid weeks immediately before the period of leave, excluding any weeks in which no pay was received.

The payroll engine must distinguish between pay elements that are regular and those that are not to accurately calculate holiday pay.

The 52-week reference period: calculation mechanics

For workers with normal working hours taking Regulation 13 leave, the holiday pay rate is calculated from the 52 paid weeks immediately preceding the period of leave. Weeks in which no pay was received (because the worker was on statutory leave, sick leave, or simply did not work) are excluded and replaced by looking further back, up to 104 weeks in total, to find 52 paid weeks.

The calculation produces an average weekly pay figure that incorporates all the pay elements that should be included under the normal remuneration principle. That average is then the rate applied for each week of Regulation 13 leave taken.

2 points worth emphasising for payroll engine design. First, the reference period is backwards-looking from the start of the leave, not from the end of the pay period or the payment date. The system must identify the 52 relevant paid weeks from the employee's pay history, not apply a rolling calendar window. Second, because weeks with no pay are excluded, the reference period can span considerably more than 52 calendar weeks for workers with significant absences. A worker returning from 12 weeks of unpaid parental leave followed by a period of annual leave could have a reference period extending back over 16 months.

The April 2024 rules for irregular and part-year workers

From 1 April 2024, workers whose hours vary significantly — such as those on zero-hours contracts with no guaranteed minimum hours, casual workers hired on an as-needed basis, or term-time workers who only work during school terms — are treated differently from those on fixed hours.

Irregular hours workers are those whose contract specifies that their paid hours are “wholly or mostly variable” across pay periods. Part-year workers are those whose contract specifies that they don't work for at least one full week per year and receive no pay during that period such as a worker employed only during school terms.

For leave years starting on or after 1 April 2024, these workers accrue holiday entitlement at 12.07% of the hours they work in each pay period, rather than receiving a fixed annual entitlement. The 12.07% figure is derived by expressing the 5.6 weeks' statutory entitlement as a percentage of the remaining 46.4 working weeks in the year. This accrual is capped at a maximum of 28 days per year, the same statutory ceiling that applies to fixed-hours workers.

Employers can choose to pay this entitlement as rolled-up holiday pay by adding 12.07% of the worker's earnings in each pay period to their regular pay straight away, rather than paying it separately when leave is taken. If rolled-up holiday pay is used, it must be shown as a separate line on the payslip. It cannot be used for employees with fixed hours.

Employers who don't use rolled-up holiday pay for these workers still need to calculate the pay rate using the 52-week reference period. The 12.07% method determines how much leave the worker accrues; the reference period determines the rate they're paid when they take it. The employer also remains obliged to ensure workers actually take their leave; paying rolled-up holiday pay doesn't remove that duty.

One important constraint: rolled-up holiday pay cannot count toward National Minimum Wage compliance. The worker's basic pay must meet NMW in its own right and rolled-up holiday pay is paid on top of it.

Holiday pay on termination

When an employee leaves, any accrued but untaken holiday must be paid out. The calculation has two components: how much leave has accrued in the current leave year, and at what rate it should be paid.

Accrual is prorated based on service in the current leave year. For a standard worker with a 25-day annual entitlement who leaves after working 79 days in a 365-day leave year, the calculation is 25 ÷ 365 × 79 = 5.4109 days accrued, less any leave already taken. A robust modern payroll engine will calculate and track these fractional accruals to multiple decimal places behind the scenes. This prevents cumulative rounding errors from creeping in over the year, ensuring your final termination payouts are always exactly right. (For irregular or part-year workers under the new 2024 rules, termination accrual is simply 12.07% of the total hours worked in the current leave year, minus any leave already taken or rolled-up pay already issued).

The pay rate applies the same normal remuneration principle as during employment: the 52-week average, including the same pay elements. For a worker with a variable pay history, the termination holiday pay calculation requires the same reference period look-back as any other holiday pay calculation. 

Holiday pay on termination is fully taxable and subject to NIC, and must be included in the final FPS submission with the correct payment date.

Determining which pay elements to include

The most practically difficult part of holiday pay compliance is working out which variable pay elements are regular enough to include in the 52-week average.

The law doesn't set a fixed threshold for what counts as regular: there is no statutory definition, and the courts have not drawn a precise line. In practice, employers and tribunals look at factors including how frequently the payment has been made, how long the pattern has persisted, and whether the employee could reasonably expect the payments to continue. Because the right answer varies by workforce, payroll systems that allow employers to configure the frequency threshold are better placed to reflect real-world pay patterns than those with a fixed built-in rule.

How holiday pay fits into the payroll run

Where rolled-up holiday pay is in use, 12.07% of the employee's earnings is added to each regular pay run as a separate line. It is taxable and subject to National Insurance in the same pay period.

Where holiday pay is calculated and paid when leave is taken, the 52-week average is calculated at the point the leave starts.

For employees accruing holiday while on statutory leave or sick leave, the reference period used is the 52 representative weeks before the statutory leave began, not the current period. The pay history snapshot from before the absence needs to be preserved so that the correct average can be applied when the accrual calculation runs.

How Intermezzo Handles Holiday Pay

The 52-week reference period is calculated from actual pay history, not a stored salary figure or a fixed calendar window. Each pay element is checked against a look-back window to determine whether it has been paid with sufficient frequency to form part of normal pay. By default, a pay element is treated as regular where it has been paid in more than 50% of the employee's pay periods within the look-back window (for example, 6 out of 12 months, or 26 out of 52 weeks) — employers can adjust this threshold to reflect their own workforce patterns. Where an element meets the threshold, it is included in the average. This check runs dynamically against actual pay history, so a pay element that becomes regular over time is picked up without a manual configuration change. The look-back extends up to 104 weeks to find 52 paid weeks, skipping any unpaid weeks. 

Worker type classification determines the accrual model. Irregular hours and part-year workers are identified at the employment record level and use the 12.07% accrual model for leave years from 1 April 2024. Fixed-hours workers, including part-time workers on fixed hours, use the standard prorated entitlement. Classification is tracked per employment, so a worker whose status changes is handled correctly without a manual update.

Rolled-up holiday pay is calculated on total period earnings and shown as a separate payslip line, as required by the April 2024 regulations, which specify that rolled-up holiday pay must be itemised distinctly so employees can see what they are receiving as holiday pay in each period.

The reference period snapshot for statutory and sick leave is preserved at the point the absence begins, so that holiday accrued during the absence uses the pre-absence average rather than the current period.

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