Average holiday pay

Average holiday pay refers to the typical amount a worker receives during a period of paid leave, calculated to fairly reflect their normal earnings. This is especially important for workers who do not have fixed weekly hours or consistent pay. In the United Kingdom, the law requires employers to base holiday pay on the average weekly earnings from the last 52 weeks in which the worker received pay. This method ensures that variable elements of pay such as commission, regular bonuses, and overtime are properly accounted for. If a worker has not been paid in any given week during the 52-week period, employers must look further back until they have 52 weeks of paid work to consider. This look-back period can extend up to a maximum of 104 weeks. Where a worker has less than 52 paid weeks, the employer must use whatever number of full paid weeks are available to calculate a fair average.

This approach ensures workers with irregular patterns of employment, such as agency staff, seasonal workers, and part-year employees, receive compensation that accurately reflects their contributions. It is not permissible to average pay over unpaid weeks, and employers must record and retain accurate wage and hour records to support the calculation.

Holiday Pay

Holiday pay is the remuneration that workers are entitled to receive when they take statutory annual leave from work. In the United Kingdom, most workers are entitled to 5.6 weeks of paid holiday each year. The purpose of holiday pay is to ensure that workers can take time off without suffering a loss of income. The amount paid during holiday must reflect a worker’s usual earnings, which for many workers will include more than just basic wages. Where applicable, employers must include regular payments such as overtime, commission, and allowances tied to job performance, qualifications, or length of service.

Holiday pay must be paid when the holiday is taken, not rolled into regular earnings unless specific criteria are met for certain types of employment. Employers who fail to provide accurate holiday pay may be in breach of employment law, leading to financial penalties or claims from workers.

Holiday Pay Entitlement

Holiday pay entitlement refers to the statutory and sometimes contractual right of workers to receive paid leave each year. Under UK law, workers are entitled to a minimum of 5.6 weeks of holiday annually. For full-time workers, this typically equals 28 days, which may or may not include public holidays depending on the employment contract. Part-time workers are entitled to the same 5.6 weeks, pro-rated based on the number of days or hours worked.

Entitlement begins from the first day of employment and is accrued over time. Some employers offer more generous terms, including additional paid holidays or enhanced rates of holiday pay. Employers must ensure that records of leave taken and entitlement remaining are kept accurately, and must compensate workers for any outstanding leave not taken when employment ends.

Calculating Holiday Pay

Calculating holiday pay requires an understanding of the worker’s earnings structure and working pattern. For workers with fixed hours and pay, the calculation is straightforward—a week’s pay is the same as their regular weekly wage. For workers with variable hours or variable pay, the process is more complex. Employers must average the worker’s weekly earnings over the last 52 paid weeks. If any of these weeks were unpaid, they must be excluded from the calculation, and earlier paid weeks must be included instead, up to a maximum of 104 weeks. For monthly paid employees, their average weekly pay is calculated by first determining their average hourly rate and then multiplying this by the number of hours typically worked each week.

Employers are responsible for ensuring that these calculations are fair, consistent, and comply with employment law. Inaccurate or underpaid holiday pay may expose the employer to claims for unlawful deduction from wages.

Umbrella Company Holiday Pay

Umbrella company holiday pay relates to how temporary workers and contractors receive holiday pay when employed through an umbrella company. An umbrella company is a third-party payroll provider that employs workers on behalf of recruitment agencies or end clients. These companies handle payroll, tax, national insurance, and statutory entitlements, including holiday pay.

There are two primary ways umbrella companies provide holiday pay. One method is to pay it when the worker takes leave, in which case the umbrella must track entitlement and ensure the correct amount is paid at the time of absence. The other method is known as rolled-up holiday pay, where the holiday pay is included as part of the hourly or daily pay rate and paid regardless of whether leave is taken. While this practice is generally discouraged for regular hours workers, it is permitted for irregular-hours and part-year workers under specific circumstances introduced in recent employment reforms. Transparency is critical in this arrangement, and umbrella companies must clearly explain how holiday pay is calculated and paid.