How to calculate holiday pay: an employer’s guide
Is calculating worker holiday pay driving you round the bend? Feel like you’re owed a holiday just for getting your head around it? Check out our employers’ guide to holiday pay calculations to make some sense of it all.
In terms of what workers are owed when taking holiday, they are entitled to a day’s pay for each day of statutory or contractual paid leave they take.
The calculation will depend on an employee’s working pattern.
A worker’s pay for a week.
Shift work with fixed hours
The average number of weekly fixed hours a worker has worked in the previous 52 weeks, at their average hourly rate.
No fixed hours
A worker’s average pay from the previous 52 weeks. (Only counting weeks in which they were paid)
How to calculate average hourly or weekly rate
What an ‘average’ week looks like varies from business to business, and worker to worker. When calculating the average hourly rate for your worker it’s important to take into consideration only the hours worked and how much was paid to them. You’ll want to take the average rate over the last 52 weeks.
A ‘week’ usually runs from Sunday to Saturday. Only use another 7-day period (like Thursday to Wednesday) if that’s how your employees’ pay is calculated.
If for whatever reason no pay was paid in any week, you will need to count back another week so the rate is based on 52 weeks in which pay was paid. You can count back a maximum of 104 weeks.
If a worker has less than 52 weeks of pay, use the average pay rate for the full weeks they have worked.
How to work out a week’s pay for someone who is paid monthly
Firstly, you’ll need to calculate the worker’s average hourly pay for the last month. The calculation for this is:
Worker’s monthly pay ÷ number of hours worked in the month = average hourly pay
Then you’ll calculate the weekly pay with the following calculation:
Average hourly pay x number of hours worked in a week
Use the weekly pay calculation for each of the last 52 weeks to work out an average week’s pay.
Who is entitled to holiday?
Workers have the right to paid holiday whether they are full time, part time or under a zero hours contract. Of course, the amount of days a worker is entitled to depends on a multitude of factors, including: hours worked, extra entitlement agreed in employee contracts.
It’s worth noting that workers accrue holiday from the day they start working, including during their probation period, during sick leave, maternity, paternity, adoption or shared parental leave.
Minimum holiday entitlement
Employees are entitled to 5.6 weeks’ paid holiday a year. This 5.6 weeks’ legal minimum holiday comprises 20 days (pro-rata’d for part time workers) plus 8 days (or pro-rata’d equivalent) to represent public or bank holidays. There is no requirement for workers to be guaranteed these specific public holidays off work, but the days do form part of statutory annual leave entitlement.
Depending on what you have contractually agreed with your employees, the 5.6 weeks’ statutory annual leave entitlement might include bank holidays.
How can you make holiday calculations easier?
With great software comes great flexibility, and even better automation. If your workers work a set number of hours and receive a fixed salary, holiday pay is relatively easy to calculate. But it can become tricky very quickly if your workers work irregular hours or term-time earn overtime, or receive bonuses and commission.