Average Holiday Pay in the UK: What Employers and Workers Need to Know
Average Holiday Pay in the UK: What Employers and Workers Need to Know
Understanding how average holiday pay is calculated under UK law is essential for both employers and employees. Since recent rulings and updates to the Working Time Regulations, the way this type of pay is determined has changed — especially for those with variable hours, overtime, or bonuses. In this article, we’ll explain what counts towards it in the UK, how it should be calculated, and what the legal requirements are.
What Is Average Holiday Pay?
This refers to the amount a worker must be paid when they take statutory annual leave. UK law requires that workers receive the same pay while on holiday as they normally earn when working. This ensures that taking time off doesn’t result in financial loss. The calculation must include all elements of normal pay, not just base salary.
How Is Average Holiday Pay Calculated?
The method of calculation depends on the type of worker and how they’re paid: For workers with fixed hours and pay: Holiday pay is based on their standard weekly earnings. If a worker is paid the same amount every week or month, that amount forms the basis of their leave pay. For workers with variable pay: If earnings fluctuate due to commission, overtime, or shift work, the amount must be calculated based on their average weekly earnings over the previous 52 paid weeks. If a worker hasn’t been employed for 52 weeks, only the available paid weeks are used — skipping unpaid ones — up to a maximum reference window of 104 weeks.
What Should Be Included?
UK law and case rulings (such as Bear Scotland and British Gas) make it clear that several types of payments must be considered when calculating pay for time off:
- Basic salary
- Guaranteed overtime
- Regular non-guaranteed overtime
- Commission
- Shift premiums and allowances
- Frequent performance bonuses
The key principle is that workers should not be worse off financially simply because they are on leave.
Statutory vs. Contractual Leave
The rules apply to the statutory 5.6 weeks of leave under the Working Time Regulations. If an employer offers more leave than the legal minimum, they may choose how the additional days are paid. However, many companies use a consistent method across all leave types to reduce admin and avoid confusion.
Common Mistakes with Average Holiday Pay
One of the most common errors is calculating leave pay based solely on base salary. If workers regularly earn overtime, bonuses, or commissions, this can result in underpayment. UK courts have reinforced that calculations must reflect what the worker would normally earn, not just their contracted wage. Employers should regularly review payroll policies to avoid mistakes.
What Happens If It’s Miscalculated?
Underpaying for leave can lead to claims for unlawful deductions and compensation, workers may be entitled to backdated payments going back up to two years, and as well as this employers could also face repetitional damage and legal costs. Accurate record-keeping and ongoing reviews are essential to avoid liability.
Final Thoughts
Getting this calculation right is about more than just legal compliance — it’s also a matter of fairness and employee trust, so whether you’re an HR manager or an employee checking your payslip, understanding how UK rules work around holiday pay can help you identify and resolve potential issues early. For additional clarity or to resolve disputes, ACAS or a legal advisor can provide guidance.
Meta Title: Average Holiday Pay UK | How It’s Calculated Under UK Law
Meta Description: Learn how average holiday pay is calculated in the UK. Find out what’s included, who it applies to, and what UK law requires for fair and legal holiday pay.
