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Calculating holiday pay

In addition to legislation, a number of recent court judgments should be taken into account when calculating holiday pay for the 4 weeks of annual leave required by the EU Working Time Directive.

Key points

  • Workers should usually receive the same pay while they are on annual leave as they normally receive while they are at work.
  • All types of overtime, including voluntary, must be included when calculating a worker's statutory holiday pay entitlement, apart from overtime that is only worked on a genuinely occasional and infrequent basis.
  • Commission should be factored into statutory holiday pay calculations.
  • Work-related travel may need to be factored into statutory holiday pay calculations.
  • A worker's entitlement to holiday pay will continue to accrue during sick leave and maternity or parental leave.
  • There are different rules for calculating holiday pay depending on the working patterns involved.
  • Workers must take their statutory paid annual leave allowance and can only be 'paid in lieu' for this when their employment ends.

General principle of holiday pay

In general, workers should receive the same pay while they are on annual leave as they normally receive while they are at work. They should not be deterred from taking leave because they are paid less while they are on leave.

This principle only applies to the 4 weeks of annual leave required by the EU Working Time Directive. All workers also receive a further 1.6 weeks of annual leave required by UK law, and some receive additional amounts as a part of their contracts too. Many employers choose to apply the judgments to this extra annual leave. Doing this is not a legal requirement but can help to keep their processes simple and understandable.

Limit on a claim for an underpayment

The Deduction from Wages (Limitation) Regulations 2014 means that a claim for backdated deductions from wages for holiday pay made on or after 1st July 2015 are subject to a two year cap. This means that the period that the claim can cover will be limited to a maximum of 2 years.

Commission

Commission is usually an amount of money a worker receives as a result of making sales and can make up some or all of their earnings. Results based commission must be factored into holiday payments for the 4 weeks of statutory annual leave required under European law. There is no requirement to do this for the additional 1.6 weeks of statutory annual leave provided under UK law, or for any additional contractual annual leave allowance. This was confirmed on 22 May 2014 when the European Court of Justice heard the case of Lock v British Gas Trading Ltd.

Work-related travel

Work-related travel can have a number of different meanings but for most employment matters, this will usually mean any travel that is made for work purposes that is not a part of a workers commute to their usual place of work. On 4 November 2014 the Employment Appeal Tribunal issued a judgment in a case joined to Bear Scotland v Fulton which covers how holiday pay should be calculated in relation to work-related travel.

Where payments are made for time spent travelling to and from work as part of a worker's normal pay, these may need to be considered when calculating holiday pay.

Holiday pay and sickness

When a worker takes paid or unpaid sick leave, their annual leave will continue to accrue. If a worker is unable to take their annual leave in their current leave year because of sickness, they should be allowed to carry that annual leave over until they are able to take it, or they may choose to specify a period where they are sick but still wish to be paid annual leave at their usual annual leave rate.

Calculating holiday pay for different working patterns

No matter the working pattern, a worker should still receive holiday pay based on a 'week's normal remuneration'. This usually means their weekly wage but may include allowances or similar payments. Some of these payments might include the situations described earlier on this page, such as commission.

  • For workers with fixed working hours - If a worker's working hours do not vary, holiday pay would be a week's normal remuneration.
  • For workers with no normal working hours - If a worker has no normal working hours then their holiday pay would still be a week's normal remuneration but the week's pay is usually calculated by working out the average pay received over the previous 12 weeks in which they were paid.
  • For shift workers - If a worker works shifts then a week's holiday pay is usually calculated by working out the average number of hours worked in the previous 12 weeks at their average hourly rate.

Payment in lieu of holidays

While workers are in employment, 5.6 weeks of their annual leave (this is the amount all UK workers are statutorily entitled to) must be taken and cannot be 'paid off'. Anything above the statutory allowance may be paid in lieu but this would depend on the terms of the contract.

When a worker's employment is terminated, all outstanding holiday pay that has been accrued but not taken (including the statutory allowance) must be paid.

Further Information

Further information is available from the links at the bottom of the page, but until further clarification is available, employers may wish to seek legal advice based on their individual circumstances. Acas will continue monitoring this situation and will update this page accordingly.

Employers and employees can also sign up for our newsletter to get any further updates: www.acas.org.uk/subscribe and they can also keep an eye out for any updates via Twitter: www.twitter.com/acasorguk.

Acas Helpline Online: FAQs about holiday pay and overtime

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