The calculation methods for holiday pay differ depending on whether the worker is regular or irregular.
Regular worker refers to contract types such as full-time, part-time, or fixed hours.
Irregular worker refers to contract types such as zero-hour and part-term.
This Help Centre article explains holiday pay and entitlement for irregular workers.
For more information about calculating holiday entitlement for regular workers, please refer to our Help Centre article.
For more information about calculating holiday pay for regular workers, please refer to our Help Centre article.
Tip: There's an employee version of this same Help Centre article that you can send to them.
Calculating annual leave entitlement
Employees and most workers are entitled to a statutory minimum of 5.6 weeks of annual leave per year. The number of weeks can be converted to a percentage of 12.07% which is calculated as a percentage of the remaining 46.4 weeks where they're not on annual leave.
Tip: Employers might offer an increased annual leave entitlement, also known as contractual leave. In this case, the number of weeks and percentage used in annual leave entitlement calculations are higher.
Irregular workers are still entitled to 5.6 weeks of annual leave, but calculating this becomes complicated when they have no fixed working pattern. Over the last few years, case law told us that part of the guidance was unlawful, which left calculations unclear.
Legislation is now available for annual leave years that start on or after 1 April 2024. This means that if your holiday year runs from January to December, the legislation will be lawful from January 2025.
Note: Unfortunately, this doesn't clear up guidance for calculating holiday pay and entitlement for irregular workers before the legislation takes effect.
In the meantime, you could speak with an employment lawyer to understand the best way to accrue holiday entitlement based on the worker's circumstances. We do have an employment lawyer that we can recommend; please contact us and we can refer you.
The new legislation allows two methods of calculating annual leave entitlement and pay for irregular workers.
Accrue an annual leave entitlement.
Accrue holiday pay, also known as 'rolled up holiday pay'.
There's more information about the two methods below:
Tip: If your contractual annual leave policy is already more favourable to the worker, then you might not need to use the new legislation.
For example, they work no more than 30 hours a week, but sometimes less. The worker can take 6 weeks of paid annual leave based on 30 hours a week which is much higher than the result of the methods below.
Accrued annual leave entitlement
In this method, the worker accrues an annual leave entitlement as a percentage, usually 12.07%, of the hours that they work during the pay period. They can take their annual leave just as a regular worker would.
Calculating this is quite simple, but it becomes more complicated if an employee takes statutory sick or parental leave. In this case, it's calculated using an average of their hours worked over the previous 52 weeks, including any weeks where they didn't work.
When the worker takes their accrued annual leave, all annual leave is paid at their 'normal rate'. This differs from regular workers, who only need to be paid the 'normal rate' for a proportion of their annual leave entitlement. For more information about holiday pay rates, it's explained in the Normal rate section in our Help Centre article
The accrual should be displayed clearly on the payslip.
Accrued holiday pay
In this method, the worker accrues holiday pay as a percentage, usually 12.07%, of the total pay that they earn during the pay period. This is paid alongside their usual pay for that pay period. They must still take their minimum annual leave entitlement, but they won't be paid when they do.
Calculating this is quite simple; however, it becomes more complicated if an employee takes statutory sick or parental leave. In this case, it's calculated as an average of their pay over the previous 52 weeks, excluding weeks where they didn't work.
Because the calculation is based on the worker's total pay, they're paid at least the 'normal rate'. This differs from a regular worker, who only needs to be paid the 'normal rate' for a proportion of their annual leave entitlement. For more information about holiday pay rates, it's explained in the Normal rate section in our Help Centre article.
The payment must be displayed clearly on their payslip. This can also prevent queries at a later date.
When to pay holiday pay
Annual leave is paid at different times depending on whether they're an irregular worker accruing an annual leave entitlement, or holiday pay.
For irregular workers who accrue an annual leave entitlement, it's paid only when they take annual leave or when they leave employment.
For irregular workers who accrue holiday pay, it's simply paid at the end of each pay period.
Paying holiday pay in PayFit
PayFit already has a feature that can be used to calculate a regular worker's pay or hours using an average of their pay or hours over the previous 52 weeks. More information on this is available in our Help Centre article.
However, the feature can't yet be used for irregular workers.