holiday pay

Could the headache of calculating holiday pay be made easier?

Could the headache of calculating holiday pay be made easier?

Head of Ops, Kendal Hulme, provides an employment law update surrounding the calculation of holiday pay.

Since the UK has left the European Union, the government now have the opportunity to abolish or change some of the originally implemented regulations. This looks set to be shaken up significantly when it comes to holiday pay.

The current way of calculating holiday pay

Currently, full-time employees are entitled to 5.6 weeks annual leave a year. This is made up of two “pots” of leave:

Regulation 13 provides 4 weeks of annual leave, which implements the leave required by the EU’s Working Time Directive.

Regulation 13A provides an additional 1.6 weeks of annual leave which is above the EU minimum requirements.

The confusion for most HR professionals, payroll and business owners comes in calculating what to pay for these different pots of leave. Throw in an employee on an irregular hour’s contract and it’s enough to blow the minds of even the most qualified mathematicians.

Pot 1, 4 weeks, must reflect a worker’s “normal remuneration” which includes regular overtime, bonuses, and commissions over a 52-week reference period.

Pot 2, 1.6 weeks, however, doesn’t have this stipulation and therefore can be paid at the employee’s basic rate.

Many employers have struggled with separating the two. The administrative burden has meant they pay the “normal remuneration” including overtime, commissions, and bonuses for the full 5.6 weeks as the calculations to separate the two are simply too complicated and time-consuming.

What is the new proposal of holiday pay calculation?

However, the government is now consulting on their proposal to change this to create a single holiday entitlement of 5.6 weeks, abolishing the two pots and combining them as one.

More information on the details of the consultation can be found here:

 Retained EU Employment Law consultation (

We are yet to understand how the payment of holidays will be calculated and whether the entire 5.6 weeks will include bonuses, overtime, and commissions. Although, what we do know, is that if this change takes place, many employers will be grateful for the simplified process in calculating the leave.

If your current contracts and policies reference the Working Time Regulations 13 and 13A and differentiate between the payment of the two leave types, you will need to update your documents and consult with your staff on any changes. You will also need to consider the potential financial impact this may have on your business if the 5.6 weeks is to include a worker’s “normal remuneration”.

The consultation closes on 7th July 2023, so we wait eagerly for updates.

Rolled up Holiday Pay to be reintroduced?

As part of the consultation on creating one single holiday entitlement and carrying over leave, the government have also proposed bringing back the once vetoed rolled-up holiday pay as an option for calculating holiday pay:

“We also propose setting out the minimum rate of holiday pay and arrangements for carrying over leave in legislation, alongside introducing rolled-up holiday pay as an additional option for calculating holiday pay.”

The government propose calculating rolled-up holiday pay should be done using the 12.07% method (statutory annual leave entitlement is 12.07% of hours worked by a worker), and that the benefits of rolling up holiday pay for atypical workers on irregular hours outweigh the negatives.  This could be music to the ears of many a business owner and HR professional who currently spend countless hours calculating the pay of an employee on an irregular contract.

Businesses will need to consider their health and safety responsibilities towards their employees. The risk of rolling up holiday pay could result in burnout for those who may not take their leave.

If you require any advice surrounding this employment law update and how it may affect your business, get in contact with our team of experts today.

T: 0330 107 1037


Twitter: @HPC_HRServices

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