Holiday pay depends on how a worker is paid and whether their hours or earnings vary. For salaried employees with fixed hours and fixed pay, holiday is normally paid through their usual salary. Where earnings vary because of overtime, commission or other regular payments, employers may need to use an average-pay calculation instead.
Different rules apply to irregular-hours and part-year workers, including the 12.07% accrual method and an optional method of paying holiday alongside normal wages. Businesses that need support applying these rules through their payroll services should make sure each employee’s working pattern and pay structure are classified correctly before calculations are made.
This guide explains how to calculate holiday pay for salaried employees and other common working patterns in the UK. In US search terminology, holiday pay may sometimes be described as vacation pay, but UK employment guidance generally uses the terms ‘annual leave’ and ‘holiday pay’.
Most UK workers are legally entitled to 5.6 weeks of paid statutory holiday each year. For someone working five days a week, this normally means 28 days of statutory annual leave.
Employers can include bank holidays within this statutory entitlement. Workers who work fewer days each week receive the equivalent entitlement on a proportional basis.
Statutory holiday entitlement generally applies to:
Holiday entitlement normally begins to accrue from the start of employment.
Holiday pay allows workers to take statutory annual leave without losing the pay they are entitled to receive.
For employers, incorrect calculations can result in payroll errors, underpayments and employee disputes. Holiday pay should therefore be treated as part of normal payroll compliance alongside PAYE, National Insurance, pension contributions and statutory payments.
The correct calculation depends on the worker’s hours, earnings and employment pattern rather than applying one method to every employee.
For employees who work regular hours and receive a fixed salary, the calculation is usually straightforward.
Under the UK’s holiday pay rules, an employee with fixed hours and fixed pay will normally continue receiving their usual salary while taking statutory annual leave.
Suppose an employee earns:
Annual salary: £36,400
Their approximate weekly pay is:
£36,400 ÷ 52 = £700
If they take one week of statutory annual leave and their hours and pay do not vary, they would normally continue receiving £700 for that week through their usual salary.
For a monthly paid employee on fixed hours and fixed pay, employers will therefore normally continue the usual monthly salary rather than adding a separate holiday payment.
Holiday pay becomes more complicated where an employee receives payments in addition to basic salary.
For regular-hours workers, part of the statutory holiday entitlement must generally reflect normal remuneration, rather than basic salary alone. Depending on the employee’s circumstances, this can include:
The government’s holiday pay and entitlement reforms distinguish between normal remuneration and basic pay when calculating different parts of statutory leave.
Employers should therefore review an employee’s actual pay structure rather than automatically basing every holiday payment on contractual basic salary alone.
Some salaried employees work regular hours but receive variable earnings because of commission, overtime or other regular payments.
Where an average is required, employers may need to use a 52-week reference period when calculating holiday pay. Weeks in which the employee received no pay may need to be excluded, with earlier paid weeks used instead where the rules require this.
Suppose an employee received total relevant pay of:
£31,200 over the previous 52 paid weeks
Their average weekly pay would be:
£31,200 ÷ 52 = £600
If one week of leave is calculated using that reference period, the holiday payment would therefore be approximately £600, subject to the applicable statutory rules.
This is particularly important where overtime or commission causes an employee’s actual earnings to differ significantly from their basic salary.
Holiday pay for irregular hours workers is calculated differently from holiday pay for someone on fixed salaried hours.
For qualifying irregular-hours and part-year workers, the holiday entitlement rules introduced for leave years beginning on or after 1 April 2024 generally allow statutory holiday entitlement to accrue at 12.07% of the hours worked during each pay period.
For example, if an irregular-hours worker completes 100 hours during a pay period:
100 × 12.07% = 12.07 hours
The relevant statutory rounding rules are then applied.
Because holiday pay for irregular hours workers depends on the worker meeting the legal definition of an irregular-hours or part-year worker, employers should confirm their working pattern before applying the 12.07% method.
For qualifying irregular-hours and part-year workers, employers may choose to use rolled-up holiday pay.
This means an additional holiday amount is paid alongside the worker’s normal wages rather than paying them separately when annual leave is taken.
The additional amount must be calculated at at least 12.07% of the worker’s total pay during the relevant pay period and shown separately on the payslip.
Suppose an eligible irregular-hours worker earns:
£1,500 during a monthly pay period
The holiday payment would be:
£1,500 × 12.07% = £181.05
The payslip would therefore show:
Normal pay: £1,500
Holiday payment: £181.05
If an employer chooses rolled-up holiday pay, the employee must still be allowed to take their annual leave. Paying the additional amount does not replace their legal right to time away from work.
Employers should not use this method for regular-hours salaried employees.
Employers do not have to use the rolled-up method for eligible irregular-hours or part-year workers.
Where the relevant rules require average pay, holiday pay may instead be calculated using earnings from the previous 52 paid weeks.
If an employee has unpaid weeks, those weeks may need to be excluded and earlier paid weeks used. The employer may need to look further back to obtain the required number of paid weeks.
If the employee has not worked for the employer for a full 52 weeks, the available complete paid weeks are generally used.
This approach is particularly useful where earnings fluctuate significantly throughout the year.
Yes. Holiday pay is normally treated as employment earnings and is therefore subject to PAYE Income Tax and National Insurance under the usual payroll rules.
This means holiday pay is generally taxed the same way as ordinary wages. Employers should include holiday payments in gross earnings when running payroll and make the appropriate PAYE and National Insurance deductions.
Accurate treatment also depends on correct submissions to HMRC, so employers should make sure their PAYE and RTI reporting reflects any holiday payments made through payroll.
From the employee’s perspective, there is therefore no separate tax-free allowance specifically for holiday pay. Holiday pay tax is calculated through the normal payroll process alongside other taxable earnings.
Some employers pay holiday amounts before an employee actually takes their annual leave.
Where a single payment covers several future weeks, employers may need to follow HMRC’s specific PAYE treatment for holiday pay paid in advance.
The correct treatment can depend on factors including:
Payroll software should therefore be configured correctly where payments cover more than one normal pay period.
When a worker leaves employment, they must normally be paid for statutory annual leave they have accrued but not taken.
This is known as a payment in lieu of holiday.
For example, if an employee leaves with three days of accrued statutory holiday remaining, payment for those three days should be included in their final pay.
If the employee has already taken more holiday than they had accrued, the employer should only deduct the excess from final wages where the deduction has been agreed in the contract or otherwise agreed in writing beforehand.
Contractual holiday provided above the statutory minimum may be treated differently depending on the employee’s contract.
From 6 April 2026, employers must keep more detailed records demonstrating compliance with annual leave and holiday pay requirements.
Under the updated GOV.UK holiday pay guidance, relevant records should be retained for at least six years from the date they were created.
Records may include:
Employers can choose how these records are maintained, but they should be able to demonstrate that workers have received the correct statutory holiday entitlement and pay.
This is especially important for businesses employing a mixture of salaried, variable-pay, irregular-hours and part-year workers.
Holiday pay errors often arise when employers use the same calculation method for every employee.
Common mistakes include:
Businesses should therefore distinguish between regular salaried employees, workers with variable earnings and qualifying irregular-hours or part-year workers before configuring payroll calculations.
Employers can reduce errors by maintaining clear and consistent annual leave procedures.
Good practice includes:
Clear records also make it easier to resolve employee questions and demonstrate compliance if calculations are challenged.
Holiday calculations are only one part of payroll compliance.
At Apex Accountants, our payroll support can include:
Businesses managing different worker types can use outsourced payroll services to reduce the administrative burden of calculating wages, annual leave and statutory payments internally.
Our team can help employers apply the appropriate holiday calculation method while keeping payroll records accurate and up to date.
Understanding how to calculate holiday pay for salaried employees starts with identifying the employee’s working pattern and how their normal earnings are structured.
For employees with regular hours and fixed salaries, holiday pay will usually continue through their normal salary. Where earnings vary because of overtime, commission or other regular payments, employers may need to calculate normal remuneration or use an appropriate reference period.
Different rules apply to qualifying irregular-hours and part-year workers, including 12.07% holiday accrual and the option to pay holiday alongside normal wages.
Employers should also account for PAYE, National Insurance, final-pay requirements and the record-keeping rules applying from April 2026.
If you need help managing holiday calculations across different employee types, Apex Accountants can provide practical payroll support.
For employees with regular hours and fixed pay, holiday pay will normally be the same as the pay they would have received while working. A monthly salaried employee therefore normally continues receiving their usual salary while taking statutory annual leave.
Yes. Holiday pay is normally treated as taxable employment earnings. Employers generally include it within gross pay when calculating PAYE Income Tax and National Insurance.
No. Paying an additional holiday amount alongside each pay period is only permitted under the statutory rules for qualifying irregular-hours and part-year workers. It should not normally be used for regular-hours salaried employees.
Where an average is required, employers generally use the relevant reference period based on previous paid weeks. Unpaid weeks may need to be excluded and replaced with earlier paid weeks when calculating the average.
Most people legally classed as workers are entitled to paid statutory annual leave. This includes full-time, part-time, agency, zero-hours, irregular-hours and part-year workers, subject to the relevant employment status rules.
An employee must normally be paid for statutory holiday they have accrued but not taken when employment ends. Any deduction for excess holiday already taken should generally have been agreed beforehand in writing.
From 6 April 2026, employers must keep records demonstrating compliance with annual leave and holiday pay requirements for at least six years from the date those records were created.
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