Rolled-Up Holiday Pay UK 2026: What, When & How It Works

Rolled up holiday pay has re-entered UK employment law as a lawful payroll mechanism, but only in tightly defined circumstances and with significant compliance conditions attached. Since April 2024, employers can use rolled up holiday pay for certain categories of workers, reversing a long-standing prohibition rooted in EU law. That change has prompted renewed interest from businesses employing casual, flexible and part-year staff.

What this article is about: This guide explains how rolled up holiday pay operates under current UK employment law, when it can be used lawfully, how it must be calculated, and the risks for employers if it is applied incorrectly. It is written for HR professionals and business owners who need certainty, defensible payroll decisions, and a clear understanding of the legal and commercial consequences of using rolled up holiday pay in practice. For the statutory framework and employer duties in context, see the Working Time Regulations 1998 and our guidance on UK holiday pay rules.

Section A: What is rolled up holiday pay and why does it matter to employers?

1. What does “rolled up holiday pay” legally mean in the UK?

Rolled up holiday pay is a method of paying statutory holiday pay by including it as an uplift to a worker’s regular wages, rather than paying holiday pay at the point when statutory leave is taken. In practical terms, the worker receives a higher hourly or daily rate of pay, with a clearly identified portion representing their entitlement to paid annual leave.

Legally, rolled up holiday pay does not remove or replace the worker’s right to take statutory leave. The entitlement to 5.6 weeks’ leave per leave year under the Working Time Regulations 1998 remains intact. The change introduced from April 2024 affects only the timing and method of payment, not the underlying right to time off. Employers should treat rolled up holiday pay as a regulated compliance mechanism within the broader working time rules for employers, not as an informal pay uplift.

For employers, this distinction is critical. Rolled up holiday pay is not simply “higher pay” or a discretionary uplift. It is a regulated method of discharging a statutory obligation, and it only operates lawfully where specific conditions are met. Treating it as an informal payroll arrangement exposes the business to wage claims and holiday pay liabilities.

From a compliance perspective, rolled up holiday pay is best understood as a statutory accounting tool, not an alternative form of remuneration.

2. Why was rolled up holiday pay previously unlawful?

For many years, rolled up holiday pay was treated as unlawful under UK law because of its incompatibility with European Union working time principles. The central concern, reflected in EU case law, was that paying holiday pay in advance discouraged workers from actually taking their statutory leave, undermining the health and safety purpose of paid annual leave.

UK tribunals consistently held that rolled up holiday pay arrangements were unlawful, even where workers appeared to benefit financially. Employers who used rolled up holiday pay during this period faced claims for unpaid holiday, unlawful deductions from wages, and in some cases, double payment where holiday pay had to be paid again when leave was taken.

Although some employers continued to use rolled up holiday pay informally, often relying on contractual wording or industry practice, this created long-term latent risk. The fact that arrangements went unchallenged did not make them lawful.

The post-Brexit legislative reform reflects a policy shift rather than a correction of previous law. Employers should not assume that historical practices are now automatically compliant. The legality of rolled up holiday pay arises only because Parliament has expressly permitted it in defined circumstances.

3. Why rolled up holiday pay has become an employer compliance issue again

The reintroduction of rolled up holiday pay reflects the realities of modern labour markets. Employers increasingly rely on workforces with irregular hours, variable engagement patterns, and short-term or seasonal working arrangements. Calculating holiday pay at the point leave is taken can be administratively complex and operationally disruptive in these contexts.

From an HR and payroll perspective, rolled up holiday pay offers perceived advantages: predictable wage costs, simplified administration, and reduced disputes over holiday accrual for workers who rarely take formal leave. These benefits are commercially attractive, particularly in sectors with high workforce churn and variable scheduling.

However, the legal framework deliberately balances those employer interests against worker protection. The legislation allows rolled up holiday pay only where the risk of workers not taking leave is mitigated by strict safeguards. Employers who adopt rolled up holiday pay without understanding its legal limits risk creating exactly the problems the reforms were designed to prevent.

In practical terms, rolled up holiday pay now sits at the intersection of payroll efficiency, statutory compliance, and litigation risk. Employers must actively decide whether to use it, rather than allowing payroll systems or legacy contracts to default into non-compliant arrangements.

Section A summary: Rolled up holiday pay is a lawful but tightly controlled method of paying statutory holiday pay in advance through wages. It does not remove the right to time off, and it is not a general pay uplift. Its reintroduction reflects workforce realities, but it also places new decision-making and compliance responsibilities on employers. Understanding what rolled up holiday pay legally is, and why it exists, is essential before considering whether and how to use it.

Section B: When is rolled up holiday pay lawful under UK employment law?

1. Which workers are legally eligible for rolled up holiday pay?

Rolled up holiday pay is not available for all workers. Its lawful use is restricted to specific categories defined in the Working Time Regulations 1998, as amended with effect from 1 April 2024. Employers must begin by identifying whether a worker falls within those categories, as using rolled up holiday pay outside them is unlawful regardless of how transparently it is paid.

The first eligible group is irregular hours workers. These are workers whose paid hours in each pay period are wholly or mostly variable, such that there is no stable or predictable working pattern. This commonly includes workers engaged on zero-hour contracts, casual work arrangements and other flexible models where hours fluctuate week by week. For practical context on how holiday pay obligations operate for this cohort, see irregular hours holiday pay and zero-hour contract holiday pay.

The second eligible group is part-year workers. These are workers who are contracted to work for only part of the year and who have periods of at least one week in the leave year when they are not required to work and are not paid. Common examples include term-time staff and seasonal workers.

Crucially, full-time employees and workers with fixed or regular hours do not fall within either category. Even if workload fluctuates in practice, a contract that specifies regular hours or a predictable working pattern will normally take the worker outside the scope of lawful rolled up holiday pay. Employers cannot lawfully opt into rolled up holiday pay for convenience or consistency across the workforce.

From an employer decision-making perspective, this means workforce segmentation is essential. Applying rolled up holiday pay to the wrong cohort is a compliance failure from day one, regardless of intent, and the exposure typically arises as wage underpayment risk and disputed holiday entitlements.

2. What changed from April 2024 and why the leave year matters

The legal basis for rolled up holiday pay arises from amendments introduced by the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023. These amendments apply only to leave years beginning on or after 1 April 2024.

This timing point is critical. Employers cannot retrospectively legitimise rolled up holiday pay arrangements that operated in earlier leave years. If rolled up holiday pay was used before the start of the first post-April 2024 leave year, the historic illegality remains relevant for claims brought within limitation periods.

For employers with non-standard leave years, careful analysis is required. A leave year that began before 1 April 2024 but ended after that date does not qualify. The new rules apply only once a new leave year begins on or after 1 April 2024.

This creates transitional risk for businesses that moved early or assumed that the reform applied immediately from April 2024 regardless of leave year structure. Payroll changes made mid-leave year can inadvertently expose employers to underpayment and unlawful deduction claims.

From a compliance standpoint, employers must be able to demonstrate precisely when the rolled up holiday pay regime was introduced and that it aligns with the correct leave year boundary, supported by contract terms, payroll configuration and worker communications.

3. What conditions must employers meet to use rolled up holiday pay lawfully?

Eligibility alone is not sufficient. The law imposes additional mandatory conditions that must be met on an ongoing basis.

First, rolled up holiday pay must relate to statutory annual leave entitlement. It should not be treated as a default mechanism for enhanced contractual leave above 5.6 weeks unless this is explicitly drafted and carefully managed, as blending statutory and contractual leave pay structures increases ambiguity and dispute risk. Many employers will reduce risk by paying contractual enhancement in the traditional way when leave is taken, supported by a clear annual leave policy.

Second, holiday pay must be clearly itemised on the worker’s payslip as a separate amount, distinct from basic pay. This is not merely a formal requirement. It is a core evidential safeguard. If itemisation is missing or unclear, the employer’s litigation position is materially weakened, including arguments around what has been paid and whether any set-off can be claimed. For payslip compliance context, see payslip requirements.

Third, workers must retain the right to take statutory leave. Rolled up holiday pay changes when holiday pay is received, not whether leave can be taken. Employers must not operate systems, rotas or performance management practices that deter, obstruct or penalise leave-taking.

Fourth, employers have a positive obligation to encourage workers to take their statutory leave. This goes beyond passive availability. Where employers rely on rolled up holiday pay, they should be able to show workers are informed of their leave rights and that taking leave is realistically possible. Failure here links directly to carry-over exposure and termination costs. For the wider carry-over risk framework, see annual leave carry over.

Failure to meet any of these conditions undermines the legality of the arrangement. From a risk perspective, the greatest exposure often arises not from calculation, but from weak documentation, poor communication or operational practices that discourage leave in practice.

Section B summary: Rolled up holiday pay is lawful only for irregular hours and part-year workers, only for leave years beginning on or after 1 April 2024, and only where strict statutory conditions are met. Employers must make deliberate, evidence-based decisions about eligibility, timing and implementation. Applying rolled up holiday pay too broadly, failing to itemise it clearly, or allowing working practices that discourage leave are common and costly compliance failures that can escalate into unlawful deduction of wages claims and carry-over liability.

Section C: How must rolled up holiday pay be calculated?

1. Why the 12.07% rate is now mandatory, not optional

For employers using rolled up holiday pay, the calculation method is prescribed by law. Unlike standard holiday pay, where averaging rules apply, rolled up holiday pay must be calculated as a fixed percentage of pay.

The statutory rate is 12.07%. This figure represents the proportion of statutory annual leave (5.6 weeks) relative to the working weeks in a full year. It is derived by dividing 5.6 weeks by 46.4 working weeks. The result is not a guideline or convention. It is the legally required uplift when rolled up holiday pay is used.

This is a critical compliance point. Employers cannot substitute alternative calculations, such as averaging actual earnings over 52 weeks, when operating a rolled up holiday pay system. Doing so risks systematic underpayment or overpayment and exposes the business to claims, including unlawful deduction of wages.

From an employer risk perspective, payroll systems must be configured so that rolled up holiday pay is calculated automatically at 12.07% of qualifying pay for each pay period. Manual adjustments or hybrid approaches introduce error and are difficult to defend in audits or tribunal proceedings.

2. What pay elements must be included in the calculation?

Rolled up holiday pay must be calculated on the worker’s holiday pay qualifying earnings. Employers should take a cautious and inclusive approach, because excluding pay elements that form part of normal remuneration creates underpayment risk.

Qualifying pay will normally include basic pay for hours worked and pay for variable hours. Where workers receive regular payments that are intrinsically linked to the work performed, employers should assess whether these should be treated as part of qualifying pay for rolled up holiday pay purposes. This includes situations where shift premia, location allowances or similar elements are paid with sufficient regularity to form part of normal pay.

From a commercial perspective, over-inclusion increases wage costs, while under-inclusion increases litigation risk. Employers should document their rationale for included and excluded pay elements and apply it consistently across the eligible cohort, supported by contracts, payroll configuration and policy wording. Employers should also consider alignment with their wider holiday pay obligations to avoid inconsistent approaches between rolled up and non-rolled up workers.

3. Why the 52-week reference period does not apply to rolled up holiday pay

One of the most common employer errors is importing standard holiday pay rules into rolled up holiday pay calculations.

The 52-week reference period, which averages pay over the last 52 paid weeks (or up to 104 weeks if needed), applies only when holiday pay is calculated and paid at the point leave is taken. It does not apply where rolled up holiday pay is lawfully used.

Using a 52-week averaging approach alongside rolled up holiday pay is legally incorrect. It creates a hybrid system that satisfies neither regime properly and makes payroll calculations difficult to audit or defend.

For HR and payroll teams, the practical rule is clear. If holiday pay is paid when leave is taken, use the 52-week reference period. If holiday pay is rolled up and paid with wages, use 12.07%.

Attempting to blend the two methods exposes the employer to claims that the statutory method has not been followed and increases the risk of cumulative underpayment across multiple pay periods.

4. How rolled up holiday pay must appear on payslips

The calculation of rolled up holiday pay is inseparable from how it is presented. The law requires transparency, and this is enforced primarily through payslip requirements.

Rolled up holiday pay must be shown as a separate line item on the payslip. It must be clearly identifiable as holiday pay, distinct from basic pay or other allowances. A single consolidated hourly rate is not sufficient, even if the total pay exceeds minimum wage thresholds.

This is not merely a formal requirement. It is a core evidential safeguard. Failure to itemise holiday pay undermines an employer’s ability to demonstrate compliance, weakens any defence to underpayment claims and materially reduces the prospects of relying on any set-off argument in disputes. For payroll transparency requirements in context, see payslip requirements.

From a compliance standpoint, payslip design is not an administrative detail. It is part of the employer’s risk control framework and should be treated as such when implementing rolled up holiday pay across eligible worker groups.

Section C summary: Rolled up holiday pay must be calculated at a fixed statutory rate of 12.07% of qualifying pay for each pay period. Standard 52-week averaging rules do not apply. Employers must take care over which pay elements are included and must ensure payslip itemisation is clear and consistent, as this is central to evidencing compliance and defending disputes.

Section D: What are the compliance and commercial risks for employers?

1. Risk of unlawful deduction of wages claims

One of the most immediate risks associated with rolled up holiday pay is exposure to unlawful deduction of wages claims. These claims arise where holiday pay is underpaid, incorrectly calculated or not paid in accordance with statutory requirements.

Because rolled up holiday pay is paid incrementally with wages, errors tend to be repeated across multiple pay periods. This creates cumulative liability rather than isolated underpayments. Workers may bring claims covering a series of deductions, and where underpayment is systemic, the financial exposure can be significant.

Employers who use the wrong calculation method, fail to include qualifying pay elements or apply rolled up holiday pay to ineligible workers are particularly vulnerable. Even small percentage errors can escalate when applied across large or long-standing workforces. For context on litigation exposure, see unlawful deduction of wages.

From a risk management perspective, the key issue is not only whether holiday pay has been paid, but whether it has been paid in the legally required way. Administrative convenience or historic practice does not mitigate liability.

2. Risk of holiday carry-over and double payment

Rolled up holiday pay does not remove the employer’s obligation to allow workers to take statutory leave. If workers are discouraged from taking leave, whether directly or indirectly, the legal consequences can be severe.

Where an employer fails to provide a genuine opportunity to take leave, statutory holiday entitlement may carry over into future leave years. In some cases, this carry-over can be indefinite. If the worker later leaves employment, the employer may be required to make a payment in lieu of untaken holiday, even though rolled up holiday pay has already been paid.

This creates the risk of effective double payment. While employers sometimes seek to rely on set-off arguments, these are not a reliable mitigation strategy. Tribunals will scrutinise whether holiday pay was correctly calculated, clearly itemised and whether the worker was genuinely encouraged to take leave. Prevention, rather than reliance on set-off, is the only dependable protection.

From a commercial standpoint, this risk often crystallises on termination, at a point when disputes are more likely and reputational and cost exposure are highest.

3. Payslip, audit and enforcement risk

The requirement to itemise rolled up holiday pay on payslips is not a technicality. It is a key enforcement and evidential mechanism.

Failure to show holiday pay separately weakens an employer’s position across multiple fronts. It undermines transparency, complicates audits and materially reduces the employer’s ability to evidence compliance in disputes. It may also amount to a breach of wider statutory payslip obligations.

In regulated or high-turnover sectors, poor payslip compliance can attract scrutiny and increase the likelihood of collective complaints or coordinated claims. Employers should treat payroll configuration and payslip accuracy as part of their compliance infrastructure, not merely an administrative function. For compliance context, see payslip requirements.

4. Contractual, policy and operational risk

Rolled up holiday pay must align with employment contracts, policies and operational practice. Inconsistencies between contractual wording, staff handbooks and payroll reality create ambiguity, which is usually resolved against the employer in disputes.

Common risk areas include legacy zero-hour templates that refer to holiday pay accrual, policies that assume holiday pay is paid when leave is taken, and rota systems that make taking leave impractical in reality. Employers using rolled up holiday pay should review alignment with their annual leave policy and broader working time documentation.

From an HR strategy perspective, rolled up holiday pay is not a “set and forget” solution. It requires ongoing monitoring, consistent messaging and active management to ensure workers are able and encouraged to take leave.

Section D summary: Rolled up holiday pay carries real compliance and commercial risks if implemented incorrectly. These include unlawful deduction claims, holiday carry-over liability, double payment exposure and enforcement scrutiny. Employers who treat rolled up holiday pay as a payroll shortcut rather than a regulated compliance tool are most likely to face costly disputes.

Rolled up holiday pay FAQs

Is rolled up holiday pay legal in the UK?
Rolled up holiday pay is lawful in the UK only for leave years beginning on or after 1 April 2024, and only for irregular hours workers and part-year workers. Its use outside these categories remains unlawful. For the wider statutory framework, see the Working Time Regulations 1998.

Can rolled up holiday pay be used for full-time or fixed-hours employees?
No. Rolled up holiday pay cannot be used for workers with fixed or predictable working hours. Using it for full-time employees or standard part-time staff is a breach of the Working Time Regulations.

Is the 12.07% rate optional or a guideline?
No. Where rolled up holiday pay is used, the 12.07% rate is mandatory. Employers should not substitute averaging methods or alternative percentages.

Does rolled up holiday pay remove the need to give time off?
No. Workers must still be allowed to take their statutory 5.6 weeks’ leave. Rolled up holiday pay affects only how holiday pay is paid, not the right to leave.

Must rolled up holiday pay be shown separately on payslips?
Yes. Holiday pay must be clearly itemised as a separate line on the payslip. This is a core evidential safeguard and failure to itemise materially weakens the employer’s position in disputes and audits. For payroll transparency requirements, see payslip requirements.

Can rolled up holiday pay be used to cover contractual holiday above 5.6 weeks?
Employers should treat rolled up holiday pay as a mechanism for statutory annual leave only. Using it for contractual enhancement above 5.6 weeks increases ambiguity and dispute risk and should only be done with explicit contractual drafting and clear policy alignment. Many employers will reduce risk by paying contractual enhancement in the traditional way when leave is taken, supported by a clear annual leave policy.

What happens if a worker does not take their holiday?
If the employer has discouraged leave or failed to provide a genuine opportunity to take it, statutory holiday may carry over into future leave years and may become payable on termination, even if rolled up holiday pay was already paid. Employers should not rely on set-off as a mitigation strategy. Operational practices that enable and encourage leave are the key control. For carry-over context, see annual leave carry over.

Can employers recover overpaid rolled up holiday pay?
Recovery is often difficult and may be impractical depending on contract terms and worker consent. Employers should treat overpayments as a wage cost risk and focus on accurate configuration rather than assuming repayments will be available.

Conclusion

Rolled up holiday pay is no longer prohibited under UK law, but it is not a general payroll convenience. It is a narrowly defined statutory mechanism designed for irregular hours and part-year workers, introduced to reflect modern workforce realities while preserving core worker protections.

For employers, the key decision is not whether rolled up holiday pay is attractive, but whether it can be implemented lawfully, transparently and defensibly. This requires correct worker categorisation, precise calculation at the statutory rate, clear payslip itemisation and active encouragement of leave.

Used correctly, rolled up holiday pay can simplify administration and reduce disputes. Used incorrectly, it exposes employers to unlawful deduction claims, holiday carry-over liability, termination costs and enforcement scrutiny. The commercial consequences of getting it wrong often outweigh the perceived administrative benefits.

Employers should approach rolled up holiday pay as a compliance decision, not a payroll shortcut.

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