UK Holiday Pay 2026: Entitlement, Calculations & When

Entitlement to holiday pay is one of the most frequently misunderstood and misapplied areas of UK employment law. For employers, errors in holiday pay calculation are rarely minor administrative issues. They create exposure to unlawful deduction of wages claims, backdated liabilities, workforce dissatisfaction and, in some cases, reputational damage where non-compliance becomes systemic.

Holiday pay rules are governed primarily by the Working Time Regulations 1998, supported by a substantial body of case law and, most recently, amended by the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, with changes taking effect from April 2024. These reforms were designed to clarify calculation rules, particularly for irregular hours and part-year workers, but they also introduced new decision points and compliance risks for employers. For wider context on employer obligations and enforcement risk, see employment law and the update on new employment regulations on holiday pay and working time. For additional practical guidance on applying the post-2024 approach, see new guidance simplifying holiday pay calculations.

What this article is about: This guide explains how holiday pay operates under UK employment law from an employer’s perspective. It focuses on who must be paid holiday pay, how entitlement and pay must be calculated across different working patterns, what changed under the 2024 reforms, and where employers are most exposed to legal and financial risk. It is written for HR professionals, business owners and managers responsible for payroll accuracy, workforce strategy and employment law compliance.

Section A: What is holiday pay and who is legally entitled to it?

1. What does the law require?

 
Holiday pay is a statutory right. Under the Working Time Regulations 1998, almost all individuals who meet the legal definition of a “worker” are entitled to paid annual leave, and to be paid for that leave at the correct statutory rate.

This entitlement is not discretionary and does not depend on length of service. Holiday pay accrues from day one of engagement. Employers cannot lawfully opt out of the statutory minimum, replace it with an allowance, or contract around it, regardless of business size or sector.

A critical point for employers is that holiday pay entitlement applies to workers, not just employees. The legal definition of a worker is deliberately broad and includes individuals who personally perform work or services for another party who is not a client or customer of their own business. This means that holiday pay obligations commonly extend to employees on permanent or fixed-term contracts, casual workers, zero-hours contract workers, agency workers, and some consultants and contractors who are not genuinely self-employed.

Misunderstanding or misapplying worker status is one of the most common sources of holiday pay disputes.
 
 

2. What must employers decide?

 
Employers must correctly identify who in their workforce qualifies as a worker for Working Time Regulations purposes. This is not determined by job title, payroll label or contractual wording alone. The reality of the working relationship matters.

Key factors employers must assess include whether the individual is required to perform work personally, whether there is a genuine right of substitution, and whether the organisation exercises control over how and when work is carried out. Where an individual is wrongly treated as self-employed, holiday pay liability can accrue quietly over time and surface later as a backdated claim.

Employers must also decide whether their payroll and HR systems are set up to apply holiday pay consistently across different categories of worker, rather than assuming statutory rights apply only to traditional employees.
 
 

3. What happens if employers get this wrong?

 
If an individual is wrongly denied holiday pay because they have been misclassified, they may bring a claim for unlawful deduction of wages in the employment tribunal. In many cases, these claims are not limited to a single holiday year. Depending on the circumstances, liability can stretch back over multiple years, particularly where the employer has failed to recognise the right to paid annual leave at all. For wider context on process and risk, see employment tribunal guidance.

Beyond direct financial exposure, misclassification disputes often attract scrutiny of wider employment practices, including minimum wage compliance, working time limits and contractual status. For employers, holiday pay disputes therefore rarely exist in isolation.

Section A summary: Holiday pay is a statutory entitlement that applies to almost all workers, not just employees. Employers must correctly identify worker status across their workforce and ensure holiday pay is provided from day one. Errors at this stage create long-term financial and legal risk, particularly where individuals have been incorrectly treated as self-employed or excluded from statutory holiday arrangements.
 

Section B: How much holiday pay must employers provide under UK law?

1. What does the law require?

 
Under the Working Time Regulations 1998, employers must provide workers with a minimum of 5.6 weeks’ paid annual leave per leave year. For a full-time worker working five days a week, this equates to 28 days’ paid leave. This figure represents the statutory floor. Employers cannot lawfully provide less, and the statutory minimum cannot be waived or reduced by agreement, even where a worker is willing to accept less.

The statutory entitlement is expressed in weeks, not days or hours. This is deliberate, allowing the entitlement to be adapted to different working patterns. For part-time and irregular workers, the same 5.6-week entitlement applies, but it must be calculated on a pro rata basis by reference to their actual working time. For an overview of entitlement rules and typical calculation approaches, see holiday entitlement.

It is also important to understand that the law does not require employers to grant time off on bank or public holidays. Instead, the statutory entitlement provides a total quantum of paid leave. Employers may require workers to take some or all of their statutory entitlement on bank holidays, provided this is made clear in the contract or holiday policy and workers are not deprived of the statutory minimum overall. Policy clarity is critical here, and employers should ensure their approach is properly set out in a compliant annual leave policy.
 

2. What must employers decide?

 
Employers must decide how statutory holiday entitlement is structured within their organisation and how it interacts with contractual leave. Many employers provide holiday entitlement that exceeds the statutory minimum, either as a contractual benefit or through long-standing custom and practice. Where this is the case, employers must ensure enhanced entitlement is applied consistently and proportionately, particularly for part-time workers.

If full-time staff receive more than 5.6 weeks’ annual leave, part-time staff must receive the same enhancement on a pro rata basis. Failing to do so can create breach of contract risk and, depending on the workforce profile and impact, discrimination exposure.

Employers must also decide how they communicate holiday entitlement to workers. Ambiguity around whether bank holidays are included, or whether additional days are discretionary, frequently leads to disputes. Clear contractual drafting and aligned holiday policies are essential, including clarity on whether unused leave can be lost at year end and the steps taken to notify workers. For policy options and risk controls, see use it or lose it holiday policy.
 

3. What happens if employers get this wrong?

 
If an employer provides less than the statutory minimum entitlement, or structures holiday entitlement in a way that effectively deprives workers of 5.6 weeks’ paid leave, this will amount to a breach of the Working Time Regulations. Workers may bring claims for unpaid holiday pay and unlawful deductions, and the dispute can quickly escalate where underpayment affects multiple workers or has been applied as a standard practice.

Where contractual enhancements are applied inconsistently, employers may also face claims for unequal treatment, particularly from part-time workers who receive fewer total days’ leave than full-time colleagues without lawful justification. In practice, these disputes often escalate because holiday entitlement is easily comparable across the workforce.

Section B summary: Employers must provide a minimum of 5.6 weeks’ paid annual leave to all workers each leave year. This entitlement is expressed in weeks, not tied to bank holidays, and cannot be contracted out of or reduced by agreement. Where employers offer more generous contractual leave, it must be applied consistently and pro rata to avoid compliance and employee relations risk.
 

Section C: How should employers calculate holiday entitlement across different working patterns?

1. What does the law require?

 
Holiday entitlement under the Working Time Regulations 1998 begins to accrue from the first day of work. There is no qualifying service requirement. Employers must ensure that workers are able to take their accrued paid leave during the relevant leave year and that entitlement is calculated accurately by reference to how the individual works.

The Regulations allow employers to operate a defined leave year, such as a calendar year or a rolling 12-month period, provided this is clearly set out in contracts or policies. During the first year of employment, employers are permitted to calculate entitlement using an accrual system, typically allocating leave on a pro rata basis as work is performed. For practical treatment of pro rata methods and common pitfalls, see pro rata guidance.

For workers with regular hours, entitlement is usually straightforward: 5.6 weeks’ paid leave per year, adjusted pro rata for part-time working patterns. However, calculation becomes more complex where working hours vary or where individuals work only part of the year.

The April 2024 reforms introduced statutory methods for calculating holiday entitlement for irregular hours workers and part-year workers. These changes were intended to provide employers with a lawful mechanism for aligning holiday entitlement more closely with hours actually worked, particularly in response to the compliance issues highlighted by Harpur Trust v Brazel.
 

2. What must employers decide?

 
Employers must decide which calculation method is appropriate for each category of worker and ensure that this method is applied consistently. For regular hours workers, most employers use a leave year approach with entitlement expressed in days or hours. For irregular hours or part-year workers, employers now have the option to calculate holiday entitlement as 12.07% of hours worked, reflecting the statutory 5.6-week entitlement expressed as a proportion of working time across a full year. For a detailed treatment of this calculation option and how it operates in practice, see holiday entitlement for irregular hours.

This method is permitted under the amended Regulations but is not mandatory. Employers may choose to continue using other lawful calculation methods, provided these do not result in workers receiving less than their statutory minimum entitlement. The key decision point is whether payroll and HR systems can accurately support the chosen approach and whether managers understand how entitlement accrues in practice, especially where hours fluctuate between pay periods.

Employers must also decide how to handle starters and leavers. Where an individual joins or leaves part way through a leave year, entitlement must be pro rated accurately. Failure to do so commonly results in underpayment on termination, which is one of the most frequent triggers for holiday pay claims. Employers with term-time or part-year arrangements should also ensure that contractual structure and payroll treatment align with the statutory definitions, particularly where there are unpaid gaps during the leave year. For additional context on these arrangements, see term-time only contracts and holiday pay.
 

3. What happens if employers get this wrong?

 
Incorrect calculation of holiday entitlement can lead to both under-provision of leave and underpayment of holiday pay. Where workers are not permitted to take their full entitlement, or where accrued leave is miscalculated, employers may face claims for unlawful deduction of wages and breach of the Working Time Regulations.

For irregular hours and part-year workers, errors carry heightened risk. The reforms provide a route to lawful pro-rating by reference to hours worked, but only where employers correctly identify eligible workers and apply the statutory method accurately. Misapplication of the 12.07% method, or applying it to workers who do not meet the statutory definitions, can recreate non-compliance and undermine the employer’s ability to defend decisions under challenge.

Section C summary: Holiday entitlement accrues from day one and must be calculated by reference to how a worker actually works. Employers must select and apply the correct calculation method for each category of worker, particularly where hours vary or work is performed only part of the year. Errors in entitlement calculation are a common source of claims and often surface at termination, when liabilities become immediately payable.
 

Section D: How must employers calculate holiday pay for regular hours workers?

1. What does the law require?

 
When a worker takes statutory annual leave, employers must pay holiday pay at the correct statutory rate. The underlying principle, established through case law and reinforced by statute, is that holiday pay should reflect what the worker would normally earn if they were working.

For workers with regular hours and fixed pay, this may appear straightforward, but the legal requirements go beyond basic salary alone. Under the Working Time Regulations 1998, as amended in April 2024, workers are entitled to be paid a “week’s pay” for each week of leave taken, with the calculation of a week’s pay governed by statutory rules rather than employer discretion.

The Regulations continue to distinguish between two components of statutory leave: four weeks’ leave, historically derived from EU law, which must be paid at the worker’s normal rate of pay, including relevant additional payments, and 1.6 weeks’ additional leave, derived from domestic law, which may be paid at basic pay only. Although this distinction remains lawful, many employers choose, for simplicity and risk reduction, to pay all 5.6 weeks at the higher normal rate.
 

2. What must employers include in holiday pay?

 
The April 2024 amendments introduced a statutory definition of what constitutes normal remuneration for the purposes of holiday pay. Employers must include the following categories of payment when calculating holiday pay for the four weeks’ EU-derived leave:

• payments intrinsically linked to the performance of tasks the worker is contractually required to carry out, including commission
• payments relating to professional or personal status, such as length of service, seniority or professional qualifications
• other payments, including overtime, which have been regularly paid to the worker during the 52 weeks preceding the holiday pay calculation date

This statutory definition reflects and consolidates existing case law, but it does not eliminate all uncertainty. Employers must exercise judgment when assessing whether a particular payment is sufficiently regular or sufficiently linked to contractual duties to be included.

Overtime is a common flashpoint. Where overtime is regularly worked and paid, it is likely to fall within normal remuneration for at least the four weeks’ EU-derived leave. For practical guidance in this area, see holiday pay on overtime and when does regular overtime become contractual.

Where pay varies, holiday pay must be calculated by reference to the average pay received over the previous 52 weeks in which the worker was paid. Weeks with no pay must be disregarded, and earlier weeks used instead, up to a maximum reference period of 104 weeks.
 

3. What must employers decide?

 
Employers must decide whether they will continue to operate two different rates of holiday pay for the two statutory leave pots or adopt a single, higher rate across all statutory leave. While the former approach is legally permissible, it increases payroll complexity and the risk of error. The latter approach may increase immediate cost but often reduces dispute risk.

Employers must also decide how to treat payments such as overtime, allowances and bonuses. Payments that are genuinely occasional or discretionary may fall outside the statutory definition, but where payments are made with sufficient regularity, excluding them creates exposure to underpayment claims. Critically, employers should not assume that historic payroll practices remain compliant. The statutory definition increases the likelihood that previously excluded pay elements will now need to be included.
 

4. What happens if employers get this wrong?

 
Failure to include required pay elements in holiday pay calculations can result in systemic underpayment across the workforce. These underpayments may give rise to unlawful deduction of wages claims, with liability potentially extending back over a series of deductions.

In practice, holiday pay claims are often brought alongside other complaints, such as overtime disputes or working time breaches, increasing both financial exposure and management time. Where underpayment affects multiple workers, there is also a heightened risk of group claims or coordinated grievances.
 

Section D summary: Holiday pay for regular hours workers must reflect normal remuneration, not just basic salary. Employers must include regular overtime, commission and status-related payments when calculating holiday pay for at least four weeks of statutory leave. Decisions about whether to separate leave pots or apply a single rate have cost and risk implications, and miscalculations can result in significant backdated liability.
 

Section E: How does holiday pay work for irregular hours and part-year workers?

1. What does the law require?

 
Holiday pay for irregular hours and part-year workers has historically been one of the most legally complex and high-risk areas for employers. These workers are entitled to the same statutory minimum of 5.6 weeks’ paid annual leave as regular hours workers, but how that entitlement is calculated and paid has been the subject of extensive litigation.

Under the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, in force from April 2024, the Working Time Regulations now include specific statutory rules for these categories of worker. The reforms were introduced to provide clarity following the Supreme Court decision in Harpur Trust v Brazel, which prevented employers from reducing holiday entitlement to reflect weeks not worked and resulted in disproportionate holiday pay outcomes for some part-year workers.

The amended Regulations now allow employers to calculate holiday entitlement for irregular hours and part-year workers as 12.07% of hours worked during a leave year. This figure represents the statutory 5.6-week entitlement expressed as a proportion of the 46.4 working weeks in a year. For additional practical guidance on how this applies in real payroll scenarios, see irregular hours holiday pay.
 

2. Who qualifies as an irregular hours or part-year worker?

 
The Regulations introduce statutory definitions that employers must apply carefully. An irregular hours worker is someone whose paid hours in each pay period during the leave year are wholly or mostly variable. A part-year worker is someone who is required to work only part of the leave year and who has periods of at least one week during that year when they are not required to work and are not paid.

These definitions are narrow and fact-specific. Not all part-time or flexible workers will qualify. Applying the 12.07% method to a worker who does not meet these definitions risks recreating non-compliance under a different guise. Employers using term-time arrangements should also ensure contractual structure and pay practices align with the statutory definition and leave-year concept, particularly where there are unpaid gaps. See term-time only contracts and holiday pay.
 

3. What must employers decide?

 
Employers must decide whether to adopt the 12.07% accrual method for eligible workers or continue using an alternative lawful approach. While the new method is intended to simplify calculations and align holiday entitlement with work actually performed, it is optional, not mandatory.

Employers must also decide how entitlement and pay are tracked in practice. Under the amended rules, holiday entitlement accrues at the end of each pay period based on hours worked during that period. Payroll systems must therefore be capable of accurately recording hours and calculating accrued leave on an ongoing basis.

Clear communication with workers is also essential. Irregular hours and part-year workers often have limited visibility of how holiday entitlement is calculated. Poor explanation increases the risk of dispute, particularly where accrued leave appears lower than under previous averaging methods.
 

4. What happens if employers get this wrong?

 
If employers misapply the 12.07% method, or apply it to workers who do not meet the statutory definitions, they may face claims for underpaid holiday pay or failure to provide the full statutory entitlement. These claims are likely to be informed by historic litigation in this area, and may attract close scrutiny by tribunals where the employer’s categorisation and methodology are unclear.

There is also a transitional risk for employers who operated averaging methods before April 2024 and fail to clearly document when and how new calculation methods are adopted. Inconsistent application across the workforce can create both legal exposure and employee relations issues.

Section E summary: The April 2024 reforms give employers a lawful mechanism to calculate holiday entitlement for irregular hours and part-year workers by reference to hours actually worked. However, the method is optional and tightly defined. Employers must ensure that only eligible workers are included, that payroll systems apply the calculation accurately, and that changes from previous practices are clearly documented to avoid renewed compliance risk.
 

Section F: Is rolled-up holiday pay now lawful for employers?

1. What does the law require?

 
For many years, the practice of rolled-up holiday pay was treated as unlawful in the UK, following European case law which held that holiday pay must be paid at the time leave is taken. The April 2024 reforms partially reversed this position for certain categories of worker.

Under the amended Working Time Regulations 1998, employers are now permitted to use rolled-up holiday pay for irregular hours workers and part-year workers only. Rolled-up holiday pay remains unlawful for workers with regular hours. For a dedicated employer overview of this change and how to implement it lawfully, see rolled-up holiday pay.

Rolled-up holiday pay involves paying an uplift on top of wages for work performed, rather than paying holiday pay at the point when leave is taken. The statutory uplift is 12.07% of total earnings, reflecting the minimum holiday entitlement of 5.6 weeks.
 

2. What must employers do if they use rolled-up holiday pay?

 
Employers choosing to use rolled-up holiday pay must comply strictly with the statutory conditions. Holiday pay must be calculated as 12.07% of the worker’s total pay in each pay period and must be clearly itemised as holiday pay on the worker’s payslip. It cannot be hidden within a general hourly rate.

Rolled-up holiday pay does not remove the obligation to allow workers to take actual time off. Employers must still ensure that workers are able to take their statutory leave. Rolled-up holiday pay changes when holiday pay is paid, not whether leave exists.

Where a worker takes sick leave, maternity leave or other statutory family leave, a specific statutory formula must be applied to calculate holiday pay during that period. Employers cannot simply continue paying the 12.07% uplift without adjustment.
 

3. What must employers decide?

 
Employers must decide whether rolled-up holiday pay is appropriate for their workforce. While it can simplify administration for genuinely irregular work patterns, it also increases the risk of error if workers are incorrectly categorised or if payroll systems are not configured correctly.

Employers must also consider employee relations. Some workers prefer to receive holiday pay when they actually take leave, rather than as a regular uplift. Clear explanation and contractual alignment are essential to avoid misunderstanding or challenge.

A further strategic decision is whether to use rolled-up holiday pay alongside the 12.07% entitlement accrual method or to use one without the other. While both are permitted, they serve different purposes and must not be conflated.
 

4. What happens if employers get this wrong?

 
If rolled-up holiday pay is applied to workers who are not irregular hours or part-year workers, it will remain unlawful. In such cases, employers may face claims for underpaid holiday pay, even if an uplift has been paid.

Failure to itemise holiday pay on payslips, or failure to allow workers to take actual leave, can also invalidate the arrangement and expose employers to claims. Because rolled-up holiday pay represents a departure from long-standing practice, errors in implementation are likely to attract close scrutiny from tribunals.

Section F summary: Rolled-up holiday pay is now lawful in limited circumstances, but only for irregular hours and part-year workers and only where strict statutory conditions are met. Employers must carefully assess worker eligibility, configure payroll systems correctly, and ensure workers continue to take actual leave. Misuse of rolled-up holiday pay remains a high-risk compliance area.
 

Section G: What are the holiday carry-over rules employers must follow?

1. What does the law require?

 
As a general rule, statutory annual leave must be taken in the leave year to which it relates. Employers are not required to allow workers to carry over unused statutory leave by default. However, the Working Time Regulations 1998 set out specific circumstances in which carry-over is either permitted or mandatory.

Employers may allow workers to carry over up to 1.6 weeks of statutory leave, the domestic portion, into the following leave year by agreement. Any leave above the statutory minimum provided as a contractual enhancement may also be carried over if the employer permits this under its policies or contracts.

The law imposes stricter obligations on employers where a worker has been unable to take leave due to certain forms of statutory absence. Workers who are unable to take annual leave because of sickness absence or maternity or other statutory family leave must be allowed to carry over the affected statutory leave into a subsequent leave year.
 

2. What must employers do in sickness and family leave cases?

 
Where a worker has been on long-term sick leave and has not been able to take statutory holiday, employers must allow carry-over of at least the four weeks’ EU-derived leave. This carried-over leave is subject to a time limit and should generally be taken within 18 months of the end of the leave year in which it accrued. For practical guidance on managing entitlement during sickness and the common payroll risks, see long-term sick leave holiday pay.

Similarly, workers returning from maternity leave, adoption leave, shared parental leave or other statutory family leave must be allowed to carry over any statutory holiday they were unable to take because of their absence. Employers must ensure that systems are in place to track accrued leave accurately during periods of absence and to communicate clearly with workers about when carried-over leave must be taken. These protections also apply to irregular hours and part-year workers where leave has accrued but could not be taken due to qualifying absence.
 

3. What if the employer is at fault?

 
A particularly high-risk area for employers arises where the failure to take holiday is attributable to the employer rather than the worker. If an employer fails to recognise a worker’s right to paid annual leave, fails to give the worker a reasonable opportunity to take that leave, or fails to inform the worker that untaken leave will be lost at the end of the leave year, the worker may be entitled to carry the leave forward until the employer rectifies the position.

This principle has been reinforced through case law and is reflected in the amended Regulations. It places a positive obligation on employers to actively enable and encourage the taking of statutory leave, rather than remaining passive.
 

4. What must employers decide?

 
Employers must decide how carry-over is handled within their organisation and ensure that policies reflect both statutory rights and any discretionary arrangements. This includes deciding whether to permit carry-over of the additional 1.6 weeks, how contractual leave is treated, and how deadlines for using carried-over leave are communicated.

Employers must also decide how proactively they monitor leave usage. Simply providing an entitlement is not sufficient where there is a risk that workers will not take leave. Failure to manage this properly can result in significant accrued liabilities building up over time.
 

5. What happens if employers get this wrong?

 
If employers unlawfully prevent carry-over or fail to allow statutory leave to be taken, they may face claims for unpaid holiday pay and unlawful deduction of wages. In employer default cases, liability can accumulate across multiple leave years, creating substantial financial exposure.

Holiday carry-over disputes also frequently arise at termination, when accrued leave becomes payable. At that point, historical failures can crystallise into immediate cost. For related guidance on termination payments and accrued entitlement, see holiday entitlement when leaving a job.

Section G summary: While statutory leave is generally intended to be taken within the relevant leave year, the law requires carry-over in specific circumstances, particularly during sickness and statutory family leave or where the employer has failed in its obligations. Employers must actively manage leave usage, track accrual accurately, and communicate clearly to prevent long-term liability from building up unnoticed.
 

Section H: What are the legal and commercial risks of getting holiday pay wrong?

1. What does the law require?

 
UK employment law places the burden of compliance on the employer. Holiday pay is treated as a statutory wage entitlement. Where it is underpaid, withheld or miscalculated, this will usually constitute an unlawful deduction of wages under the Employment Rights Act 1996, as well as a breach of the Working Time Regulations 1998.

There is no requirement for a worker to prove intent or bad faith on the part of the employer. Liability arises from the fact of non-compliance. In practice, this means that even well-intentioned payroll errors can carry legal consequences.
 

2. What claims can workers bring?

 
The most common route for holiday pay disputes is a claim for unlawful deduction of wages in the employment tribunal. These claims may relate to individual underpayments or to a series of deductions over time, for example where holiday pay has consistently excluded overtime or commission.

Where deductions form part of a series, workers may seek recovery of historic underpayments, subject to statutory limitation rules. While there is currently a two-year backstop on how far back tribunal claims can go for unlawful deductions, this does not eliminate risk, particularly where multiple workers are affected or where claims are brought promptly following termination.

In addition to tribunal claims, disputes over holiday pay frequently trigger grievances, collective complaints or union involvement, increasing management time and operational disruption.
 

3. What are the commercial consequences for employers?

 
Beyond the direct cost of paying arrears, holiday pay errors often have wider commercial impact. Where miscalculations affect a group of workers, employers may face multiple claims arising from the same underlying issue, increasing total liability.

There is also a reputational dimension. Holiday pay disputes are often perceived by workers as a basic fairness issue. Where problems become public, particularly in sectors with high overtime or variable pay, this can damage employer brand and employee relations.

In some cases, holiday pay disputes prompt broader scrutiny of employment practices, including working time compliance, minimum wage issues and contractual arrangements. This can lead to follow-on claims or regulatory attention that extends beyond holiday pay itself.
 

4. What must employers do to manage risk?

 
Employers must take a proactive approach to holiday pay compliance. This includes auditing pay elements included in holiday pay calculations, reviewing worker classifications, and ensuring payroll systems reflect current statutory requirements.

Employers should also ensure that managers understand the importance of enabling workers to take leave and that systems are in place to prevent excessive accrual. Regular review of holiday data and clear communication with workers can reduce the likelihood of disputes escalating into formal claims. For additional guidance on responding to disputes and claims risk, see employment tribunal and unlawful deduction of wages.

Section H summary: Getting holiday pay wrong exposes employers to unlawful deduction claims, backdated liability and wider commercial risk. Errors are often systemic rather than isolated and can affect multiple workers simultaneously. Proactive compliance, regular review and informed decision-making are essential to control exposure in this area.
 

Section I: What should employers do now to stay compliant with holiday pay law?

1. What does the law require?

 
While the Working Time Regulations 1998 set out minimum statutory obligations, the legal risk for employers rarely arises from the existence of those rules alone. It arises from how those rules are implemented in contracts, payroll systems, management practice and day-to-day decision-making.

Employers are expected not only to provide the correct level of holiday pay, but also to ensure that workers are able to take their statutory leave and understand their entitlement. Passive compliance is not sufficient where failures in systems or communication prevent leave from being taken or paid correctly.

The April 2024 reforms increase the importance of demonstrable compliance, particularly for organisations engaging irregular hours or part-year workers.
 

2. What must employers do in practice?

 
Employers should take a structured approach to holiday pay compliance, starting with a payroll and entitlement audit. This involves reviewing which pay elements are currently included in holiday pay calculations and assessing whether any regular overtime, commission or allowances should now be included under the statutory definition of normal remuneration. Employers with significant overtime exposure should ensure their approach aligns with current requirements and documented practice. See holiday pay on overtime.

Worker classification should also be reviewed. Employers should identify which individuals qualify as workers, which qualify as irregular hours or part-year workers, and whether any individuals are at risk of misclassification. This is particularly important where rolled-up holiday pay or the 12.07% accrual method is being considered. For implementation context, see rolled-up holiday pay and holiday entitlement for irregular hours.

Contracts and policies should be checked to ensure they align with current law. Holiday clauses should clearly explain entitlement, how holiday pay is calculated, whether bank holidays are included, and how carry-over operates. Employers should ensure their written approach is reflected in a compliant annual leave policy and that “use it or lose it” wording is used carefully and lawfully where relevant. See use it or lose it holiday policy.

Operationally, employers should ensure that payroll systems are capable of supporting compliant calculations, including 52-week averaging, accurate accrual tracking and itemised payslip reporting where required. Managers should be trained to understand their role in enabling leave to be taken and preventing excessive accrual.
 

3. What happens if employers delay action?

 
Delaying review or relying on historic practices creates cumulative risk. Holiday pay liabilities often build up slowly and surface at termination, restructuring or dispute, when the full cost becomes immediately payable.

In many cases, employers only discover non-compliance after a claim has been raised. At that point, options are limited, and liability may extend beyond the individual complainant if systemic issues are uncovered.

Proactive review allows employers to correct issues before they crystallise into claims, to budget for any necessary adjustments, and to communicate changes in a controlled and defensible way.

Section I summary: Holiday pay compliance requires active management. Employers should audit pay practices, review worker classifications, update contracts and policies, and ensure payroll systems reflect current law. Early action reduces legal exposure, controls cost and demonstrates compliance if challenged.
 

Holiday Pay FAQs for Employers

1. Can employers still separate the four weeks’ EU-derived leave and the 1.6 weeks’ domestic leave for pay purposes?

 
Yes. The Working Time Regulations 1998 continue to permit employers to treat the two elements of statutory leave differently for pay purposes. The four weeks’ EU-derived leave must be paid at a worker’s normal rate of pay, including relevant additional payments, while the additional 1.6 weeks may be paid at basic pay only.

Although lawful, this approach increases payroll complexity and the risk of error. Many employers choose to pay all 5.6 weeks at the higher normal rate to simplify administration and reduce compliance risk.
 

2. Is the 12.07% holiday entitlement method compulsory for irregular hours workers?

 
No. The 12.07% method introduced by the April 2024 reforms is permitted, not mandatory. Employers may continue to use alternative lawful calculation methods, provided workers receive at least the statutory minimum entitlement.

The principal risk lies in applying the 12.07% method to workers who do not meet the statutory definitions of irregular hours or part-year workers.
 

3. Can bonuses be excluded from holiday pay calculations?

 
It depends on the nature of the bonus. Bonuses that are intrinsically linked to contractual duties or that are paid with sufficient regularity may need to be included in holiday pay calculations for the four weeks’ EU-derived leave.

Truly discretionary or exceptional bonuses may fall outside the statutory definition of normal remuneration, but employers should assess this carefully. Excluding bonuses without proper analysis can expose employers to underpayment claims.
 

4. How far back can workers claim for underpaid holiday pay?

 
Most holiday pay claims are brought as unlawful deduction of wages claims and are subject to a two-year backstop on how far back tribunal claims can go. However, this does not eliminate risk, particularly where underpayment has affected multiple workers or where claims are brought shortly after termination.

Where holiday has been prevented from being taken due to employer default, liability may extend beyond a single leave year.
 

5. Is rolled-up holiday pay now lawful in the UK?

 
Rolled-up holiday pay is lawful only for irregular hours workers and part-year workers, and only where strict statutory conditions are met. It remains unlawful for regular hours workers.

Holiday pay must be itemised separately on payslips, and workers must still be allowed to take actual leave. Misuse of rolled-up holiday pay remains a high-risk compliance area.
 

6. Can employers refuse holiday requests?

 
Yes. Employers can refuse holiday requests or require workers to take leave at particular times, provided they give the required statutory notice and do not prevent workers from taking their minimum statutory entitlement overall.

Where refusal practices result in workers being unable to take leave, carry-over rights and employer liability may arise.
 

7. What happens to unused holiday when employment ends?

 
Workers are entitled to be paid for any accrued but untaken statutory holiday on termination. This must be calculated up to the termination date and paid with final wages. Failure to pay accrued holiday on termination is a common and avoidable source of claims.
 

8. Are agency workers entitled to holiday pay?

 
Yes. Agency workers are entitled to statutory holiday pay in the same way as other workers. While responsibility for payment may sit with the agency, end users should be alert to compliance risk where arrangements are unclear or misapplied.
 

9. Do workers accrue holiday during sick leave?

 
Yes. Workers continue to accrue statutory holiday entitlement during sick leave. Where leave cannot be taken due to sickness, statutory carry-over rules apply, subject to defined limits.
 

10. Is holiday pay enforcement increasing?

 
There is no single holiday pay regulator, but enforcement risk arises through employment tribunal claims, collective grievances and wider scrutiny of employment practices. Holiday pay disputes frequently act as a gateway to broader compliance challenges.
 

Conclusion

 
Holiday pay is not an administrative detail. It is a statutory wage entitlement that sits at the intersection of payroll accuracy, workforce planning and legal risk management. For employers, errors in holiday pay calculation rarely remain isolated. They tend to surface at termination, during grievances or alongside other disputes, when historic underpayments crystallise into immediate and sometimes significant liability.

The April 2024 reforms have clarified parts of the law, particularly for irregular hours and part-year workers, but they have also increased the importance of informed employer decision-making. Employers must now actively choose how holiday entitlement and holiday pay are calculated, ensure those choices align with statutory definitions, and confirm that payroll systems are capable of applying the rules correctly in practice.

Key risk areas remain consistent: misclassification of workers, exclusion of regular pay elements from holiday pay, misuse of rolled-up holiday pay, and failure to manage holiday carry-over properly. Each of these issues can give rise to unlawful deduction claims, backdated liabilities and reputational harm if not addressed proactively.

For HR professionals and business owners, holiday pay compliance should be treated as an ongoing governance issue rather than a one-off calculation exercise. Regular audits, clear contractual drafting, aligned policies and informed management practice are essential to reducing exposure and maintaining defensible compliance in an area of law that continues to attract scrutiny.
 

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