Rolled up holiday pay is a method of paying irregular hours and part-year workers for their statutory holiday entitlement by adding an additional amount to their regular wages, rather than providing paid leave when holiday is taken. It is calculated at a rate of at least 12.07% of the worker’s total pay for each pay period, to reflect the statutory annual leave entitlement of 5.6 weeks. For organisations that employ workers with unpredictable or varying work schedules, this method can greatly simplify holiday pay calculations.
In this guide for employers, we explain the rules on calculating rolled-up holiday pay, and the specific conditions that apply for lawful use.
What is rolled up holiday pay?
All workers in the UK have a right to holiday pay; one week’s pay for each week of statutory leave. The amount they are entitled to is calculated by reference to the hours worked and how they are usually paid.
For fixed hour workers, this is a fairly simple process, but for flexible hours, casual and zero hour contract workers, the calculations can become more complex as the employer needs to consider the average number of hours worked to determine the amount of holiday pay the worker is owed.
As a result, to simplify these calculations, employers can opt to use rolled up holiday pay for irregular hours workers by adding an amount to their basic pay to compensate for holiday entitlement, instead of paying them for their holiday when they take it. This approach results in a slightly increased hourly rate for the worker, representing their accumulated holiday entitlement, and streamlines payroll administration for employers.
When is rolled up holiday pay allowed?
Previously, rolled-up holiday pay was considered unlawful under EU regulations, as it was believed to discourage workers from taking their statutory leave entitlement.
However, in 2024, the UK government updated the Working Time Regulations 1998 to permit rolled-up holiday pay for certain categories of workers and provided certain conditions are met.
For leave years beginning on or after 1 April 2024, employers can legally include rolled-up holiday pay in the wages of irregular hours workers, such as those employed on casual or zero-hours contracts, and for part-year workers, such as employees working term-time only.
Employers are required to itemise holiday pay as a separate payment on payslips, and actively encourage these worker to take their leave entitlement.
While rolled-up holiday pay can be beneficial in managing workforce flexibility, businesses must assess whether it aligns with their operational needs and employment contracts. Employers should also be aware that failing to apply rolled-up holiday pay correctly, or not providing sufficient clarity to workers about these payments, could lead to disputes or claims.
For employers considering rolled-up holiday pay, it is advisable to review contracts, ensure payroll systems are correctly set up and communicate clearly with employees about how their holiday pay is calculated and paid.
How is rolled up holiday pay calculated?
The recommended approach is to calculate holiday pay using an average of the worker’s earnings over the previous 52 weeks in which they received pay, excluding any weeks where no pay was earned. This is because holiday pay should accurately reflect the worker’s actual earnings.
Employers can use the historical guideline of a 12.07% uplift, calculated by dividing the statutory holiday entitlement of 5.6 weeks by the total working weeks (52 minus 5.6 = 46.4 weeks), yielding approximately 12.07%.
While useful, this percentage is no longer a statutory requirement; actual earnings averaged over the reference period are the legally compliant measure.
Why use rolled up holiday pay?
Businesses that employ casual and zero-hour contract workers often use rolled-up holiday pay due to its administrative convenience. Calculating holiday entitlement and pay for flexible workers can be complex and time-consuming, particularly when working hours vary significantly, and when elements such as overtime and commission need to be factored in. Managing annual leave for such workers can also present challenges when creating work rotas, as it requires careful planning to ensure adequate staffing levels. As a result, many employers opt to include rolled-up holiday pay in workers’ regular wages, offering a more straightforward method that eliminates the need for additional calculations.
From the workers’ perspective, rolled-up holiday pay can be attractive as it provides immediate financial benefits, allowing them to receive a higher hourly rate rather than waiting to take paid time off. Some workers prefer this arrangement as it gives them greater control over their income and flexibility in how they choose to manage their work schedules.
However, the legal position regarding rolled-up holiday pay has been subject to change and ongoing debate. Although historically deemed unlawful under European Union law due to concerns that it discouraged workers from taking their statutory leave, legislative changes in the UK effective from 1 April 2024 now permit rolled-up holiday pay for irregular hours and part-year workers. The updated regulations allow employers to include holiday pay as an uplift to wages, provided that it is clearly itemised on payslips and meets the legal percentage requirement of 12.07%.
However, while rolled-up holiday pay offers operational advantages for businesses, these benefits have to be balanced with the employer’s legal obligation to encourage workers to take their statutory holiday entitlement.
Rolled up holiday pay and zero hour contract workers
Zero-hour contract workers are entitled to paid time off work, just like any other workers. Under current rules, employers are permitted to use rolled-up holiday pay for workers with irregular hours, including those on zero-hour contracts.
The entitlement to holiday pay for zero-hour contract workers is calculated based on their average weekly earnings over the previous 52 paid weeks (or up to 104 weeks if needed), excluding any weeks in which no work was performed. If a worker has not worked for a full 52 weeks, only the weeks in which they were paid should be considered. The reference period may extend beyond 52 weeks if necessary but cannot exceed 104 weeks in total.
Employers have to distinguish between basic pay and rolled-up holiday pay on the worker’s payslip.
Employers still have a legal responsibility to encourage workers to take their statutory leave.
Risks for employers of using rolled up holiday pay?
While rolled-up holiday pay is now permitted under specific conditions for certain workers, employers who use it must carefully consider potential risks to ensure compliance with employment law and avoid costly disputes.
One of the main risks is the potential for double payment. If a worker can demonstrate that they were discouraged from taking their statutory holiday entitlement, they may be entitled to compensation deemed ‘just and equitable.’ This could result in the employer having to pay holiday pay twice, once through rolled-up holiday pay and again as compensation for the failure to allow proper holiday entitlement. Alternatively, workers may be able to carry over unused holiday entitlement to the following leave year. If they then leave the business, they could claim payment in lieu of untaken holiday upon termination of their contract.
Another risk is that workers with irregular hours may not receive the correct holiday pay. The rolled-up holiday pay system assumes a consistent earnings pattern, which may not accurately reflect the fluctuating hours of casual and zero-hour workers. This could lead to claims for unlawful deduction of wages if workers are underpaid, or potential overpayments that could become a financial burden for the employer.
Employers should also ensure that the payslips they issue clearly distinguish between basic pay and the holiday pay component, and that workers are not discouraged from taking leave.
Need assistance?
As employment law specialists, we can assist if you have any queries relating to holiday pay and employee entitlements to pay and time off work. Speak to our experts today for advice on using rolled up holiday pay or alternatives to suit your business.
Rolled up holiday pay FAQs
Is rolled up holiday pay legal in the UK?
As of April 2024, rolled-up holiday pay is permitted for workers with irregular hours or part-year contracts. Employers must ensure that holiday pay is clearly itemised on payslips and paid at the correct rate to comply with employment law.
How is rolled up holiday pay calculated?
Employers typically use a reference period, averaging the worker’s pay over the previous 52 weeks they actually worked, excluding unpaid weeks. Historically, a 12.07% uplift was commonly applied, representing the annual entitlement of 5.6 weeks’ holiday, though current best practice prioritises averaging actual earnings.
Can an employer pay rolled up holiday pay instead of giving time off?
Workers are still entitled to take their statutory holiday leave. Employers must encourage employees to take their holiday entitlement to ensure compliance with the Working Time Regulations.
Who can receive rolled up holiday pay?
Workers with irregular hours, such as those on zero-hour or part-year contracts, are eligible for rolled-up holiday pay under the updated rules. Permanent full-time employees should continue to receive holiday pay in the traditional way.
What are the risks of using rolled-up holiday pay?
There is a risk that workers may not take their entitled leave, which could lead to legal challenges. If rolled up holiday pay is not correctly calculated or itemised, businesses may face claims for underpayment or unlawful deductions.
Should rolled-up holiday pay be shown separately on payslips?
To comply with legal requirements, rolled-up holiday pay must be displayed as a separate line item on payslips, making it clear to workers what portion of their pay is allocated for holiday entitlement.
Can rolled-up holiday pay be used in all industries?
While rolled up holiday pay is allowed for irregular hours and part-year workers, its use should be carefully considered in sectors with varying pay structures to ensure compliance with industry regulations and contractual agreements.
What happens if a worker leaves without taking their holiday?
If a worker leaves their job without taking their statutory holiday, they are entitled to receive payment in lieu of untaken leave, which must be calculated based on their average earnings over the previous 52 paid weeks.
Glossary
| Term | Definition |
|---|---|
| Rolled Up Holiday Pay | A method of including holiday pay within regular wages, rather than paying it separately when leave is taken. |
| Statutory Holiday Entitlement | The minimum amount of paid holiday that workers are legally entitled to under UK law, currently 5.6 weeks per year. |
| Irregular Hours Worker | An employee or worker whose working hours vary from week to week, such as those on zero-hour contracts. |
| Part-Year Worker | An individual who is employed for part of the year only, such as seasonal workers or term-time employees. |
| Working Time Regulations | UK legislation that governs working hours, rest breaks, and paid annual leave entitlements for employees. |
| Holiday Pay Calculation | The process of determining the amount of holiday pay owed to a worker, often calculated using a 12.07% uplift. |
| 12.07% Calculation | The percentage used to calculate holiday pay, based on the assumption of 5.6 weeks of leave out of 46.4 working weeks. |
| Reference Period | A period of 52 paid weeks used to calculate holiday pay entitlement for workers with irregular working patterns. |
| Unlawful Deduction of Wages | A claim made by workers when an employer fails to pay wages or holiday pay correctly, potentially leading to legal disputes. |
| Holiday Carry-Over | The right of workers to transfer unused statutory holiday entitlement to the following leave year under certain conditions. |
| Itemised Payslip | A payslip that clearly separates basic pay and holiday pay to ensure transparency and compliance with legal requirements. |
| Zero-Hour Contract | A type of employment contract where the employer is not obliged to provide a set number of working hours. |
| Employment Contract | A legal agreement between an employer and employee that outlines terms and conditions, including holiday pay arrangements. |
| Holiday Pay Disputes | Legal disagreements that arise when workers believe they have not received the correct holiday pay entitlement. |
| Set-Off | The process of offsetting holiday pay already included in wages against any future claims for unpaid holiday entitlement. |
Author
Founder and Managing Director Anne Morris is a fully qualified solicitor and trusted adviser to large corporates through to SMEs, providing strategic immigration and global mobility advice to support employers with UK operations to meet their workforce needs through corporate immigration.
She is a recognised by Legal 500 and Chambers as a legal expert and delivers Board-level advice on business migration and compliance risk management as well as overseeing the firm’s development of new client propositions and delivery of cost and time efficient processing of applications.
Anne is an active public speaker, immigration commentator, and immigration policy contributor and regularly hosts training sessions for employers and HR professionals
