Statutory Holiday Pay In The UK: How To Calculate And Pay Leave

Holiday pay can feel straightforward until you’re the one running payroll, managing rotas, and answering “how much will I get paid for annual leave?” across different working patterns.

For small businesses, getting statutory holiday pay right isn’t just about keeping your team happy (although it helps). It’s also about staying compliant with UK employment law, avoiding wage claims, and reducing the risk of disputes when someone leaves.

This guide breaks down what statutory holiday pay is, who qualifies, how to calculate it (including tricky variable-hours situations), and how to set up a process that works in the real world.

What Is Statutory Holiday Pay (And Where Does It Come From)?

Statutory holiday pay is the pay staff are entitled to receive when they take their statutory annual leave.

In the UK, holiday entitlement and holiday pay rules mainly come from the Working Time Regulations. In simple terms, most workers are entitled to a minimum amount of paid leave each year, and they must be paid correctly for that leave.

How Much Statutory Annual Leave Do Staff Get?

Most workers are entitled to 5.6 weeks’ paid holiday per holiday year. For a full-time employee working 5 days a week, that’s 28 days.

Importantly, the 5.6 weeks can include bank holidays if your contract says so. This is where wording matters a lot, especially if your business closes on bank holidays.

• If you want bank holidays to be included within the 28 days, you’ll usually reflect that in your contract wording (for example, “28 days inclusive of bank holidays”).
• If you offer 28 days plus bank holidays, you’re offering more than the statutory minimum.

If you’re unsure about wording, it’s worth checking what inclusive of bank holidays means in practice, because misunderstandings here often lead to payroll and HR headaches.

Holiday Pay Is Not Just “Basic Pay” In Every Case

Many employers assume holiday pay is always just someone’s basic hourly rate or salary. But for some staff, especially those with variable hours or variable pay, it can be more complicated.

This is because UK rules are designed (broadly) to ensure workers aren’t financially worse off for taking annual leave.

Who Must You Pay Statutory Holiday Pay To?

From an employer perspective, a good starting point is:

If someone is classed as a “worker”, they’re usually entitled to statutory paid holiday.

This includes:

• Employees (full-time and part-time)
• Most casual staff (depending on status)
• Zero-hours workers
• Agency workers (often, though who pays can vary)

Some genuinely self-employed contractors won’t be entitled to statutory holiday pay, but status is a legal test (and can be disputed). If you treat someone like a worker, but label them “self-employed” without the reality matching, you can end up owing backdated holiday pay.

Part-Time Staff

Part-time workers are still entitled to 5.6 weeks’ leave, but it’s pro-rated based on how many days (or hours) they work.

For example:

• 3 days per week x 5.6 = 16.8 days’ holiday per year
• 2.5 days per week x 5.6 = 14 days’ holiday per year

In practice, you’ll often convert entitlement into hours for payroll and rostering.

“When A Non-Working Day Falls On A Bank Holiday”

A common pain point: a part-time employee who doesn’t normally work Mondays may feel it’s unfair that bank holidays “don’t count” for them.

The key is consistency and correct pro-rating. If holiday entitlement is correctly pro-rated, bank holidays falling on non-working days don’t usually create extra entitlement automatically.

If you’re managing a lot of part-time patterns, it helps to understand what happens if a bank holiday falls on someone’s non-working day, because this is one of the most common sources of complaints.

How Do You Calculate Statutory Holiday Pay?

The core idea is:

• If pay is fixed, holiday pay is usually straightforward.
• If pay is variable, you generally need to use an averaging method.

Below is a practical breakdown.

1) Staff With Fixed Hours And Fixed Pay

If someone has normal working hours and their pay doesn’t vary, holiday pay is usually based on their normal weekly pay.

Examples:

• Salaried employee: holiday pay typically matches their salary (i.e. they’re paid as normal while on leave).
• Hourly employee working a consistent 40 hours weekly: holiday pay is usually 40 hours at their normal rate.

If your payroll is set up well and your Employment Contract clearly states hours, pay, and holiday, this category is generally low-risk.

2) Staff With Variable Hours Or Variable Pay

This is where small businesses often get caught out.

If someone’s hours or pay fluctuate (for example, casual staff, seasonal staff, or staff with regular overtime/commission), holiday pay may need to reflect an average of what they actually earn.

In many cases, this is calculated using a 52-week reference period (looking back over the last 52 weeks in which the worker was paid, ignoring weeks with no pay, and going back up to 104 weeks if needed to find 52 paid weeks).

In practical terms, you’re often calculating an average week’s pay, then paying that for the holiday week (or converting it into an hourly rate).

What Counts Towards “Normal Pay” For Holiday Pay Purposes?

Holiday pay doesn’t always mean “basic pay only”. In particular, for the core 4 weeks of statutory leave (often referred to as “EU leave”), case law generally expects holiday pay to reflect a worker’s normal remuneration so they aren’t deterred from taking leave.

The additional 1.6 weeks of statutory leave (“UK leave”) can, in some situations, be paid at basic pay only (depending on the contract and how you structure pay), although many employers choose to apply the same approach across the full 5.6 weeks for simplicity and consistency.

In practice, payments that are sufficiently regular and linked to the job are more likely to need to be included in holiday pay calculations for the 4-week element. Common examples include:

• Regular overtime (for example, overtime that is routinely worked and paid)
• Commission that is intrinsically linked to performance of the job
• Certain allowances (depending on what they’re for and how consistently they’re paid)

This doesn’t mean every bonus or one-off payment automatically inflates holiday pay. But if a payment is a normal part of earnings, it can be risky to exclude it without taking advice.

A Simple Example Of 52-Week Averaging

Let’s say a worker’s weekly pay over the past year varies between £250 and £450 depending on shifts. You’d:

1. Identify the last 52 weeks where they received pay.
2. Total the gross pay for those weeks (as relevant to the calculation).
3. Divide by 52 to get an average week’s pay.
4. Use that average figure to pay holiday weeks (or pro-rate for days/hours taken).

If you’re doing this manually for multiple staff, it can get time-consuming fast. Many businesses rely on payroll software, but it’s still your responsibility to ensure the settings reflect the law.

When And How Should You Pay Statutory Holiday Pay?

Even if your calculation is correct, you can still run into problems if the timing and process aren’t right.

Paying Holiday Pay During Leave

Most businesses pay holiday pay at the time leave is taken, through the normal payroll cycle. The key is that the worker should receive the right pay for the leave period in the usual pay run (unless your payroll timetable means there’s a small delay that you’ve communicated clearly).

Keep in mind that holiday pay is still “wages” for legal purposes. Underpaying it can lead to unlawful deductions claims.

Rolled-Up Holiday Pay (A Special Case)

“Rolled-up” holiday pay is where you add an additional percentage to hourly pay, rather than paying holiday pay when leave is taken.

Historically, rolled-up holiday pay has been legally risky in many situations. However, reforms that took effect for holiday years starting on or after 1 April 2024 introduced clearer rules allowing rolled-up holiday pay for certain categories of workers (particularly irregular hours workers and part-year workers), provided specific requirements are met.

In those scenarios, holiday pay may be calculated as 12.07% of pay for work done in the pay period (reflecting the statutory 5.6 weeks as a proportion of working weeks).

Rolled-up holiday pay can be helpful for some business models (hospitality, events, seasonal operations), but it’s not a “set and forget” solution. You need to apply it to the right people, document it properly, and keep records.

Accruing Holiday During Sickness, Maternity, Or Other Leave

Holiday entitlement generally continues to accrue during statutory leave types (like maternity leave) and during sickness absence. Managing this properly matters because it can create:

• carry-over obligations
• termination pay calculations when someone leaves
• confusion about what leave is taken when

This is a good reason to have clear written policies in a Staff Handbook, so managers apply rules consistently.

Common Statutory Holiday Pay Mistakes Small Businesses Make (And How To Avoid Them)

Holiday pay mistakes are easy to make because you’re juggling legal rules, contract wording, payroll, and human expectations at the same time.

Here are some of the most common traps we see.

1) Treating Bank Holidays As “Extra” Without Clear Contract Wording

If your contract doesn’t clearly state whether holiday entitlement is inclusive of bank holidays, you can end up with disagreements about:

• whether bank holidays reduce the annual entitlement
• whether staff must save leave for closures
• whether part-time staff get “short-changed”

Also, if a team member is scheduled not to work the day a bank holiday falls, you might need a consistent approach for whether they take leave, get a day in lieu, or simply don’t work it.

It helps to decide your business approach upfront and document it clearly, including what happens with day in lieu arrangements if you offer them.

2) Underpaying Holiday For People With Regular Overtime Or Commission

If your staff regularly earn extra payments (even if their basic wage is modest), holiday pay based only on basic pay can become an issue. Over time, this can create backpay exposure and disputes when someone resigns or is dismissed.

If your pay structures are more complex (commission schemes, shift allowances, productivity bonuses), it’s worth getting tailored advice so your calculation method matches how your workforce actually operates.

3) Not Keeping Clear Records Of Leave Taken

From a compliance perspective, you should be able to show:

• how much leave someone is entitled to
• how much they’ve taken
• what you paid them for that leave
• what balance remains (including any carry-over)

If a dispute arises, good records are often the difference between resolving it quickly and dealing with a drawn-out issue.

4) Getting Final Pay Wrong When Someone Leaves

When an employee or worker leaves, you’ll often need to calculate:

• holiday accrued but not taken (which is typically payable)
• holiday taken in excess of entitlement (which you may be able to deduct, but only if the contract allows it and deductions are lawful)

This is also where “inclusive of bank holidays” drafting and your holiday year dates really matter.

5) Having Policies That Don’t Match What Happens In Real Life

Small businesses often start with informal arrangements (“just message me if you need a day off”). That can work early on, but once you grow, inconsistencies creep in and resentment follows.

Even a small team benefits from:

• a clear holiday request process
• rules for busy periods and black-out dates (if needed)
• guidance on carry-over
• clear bank holiday rules

Documenting these expectations is also a practical way to reduce employment risk and set the tone from day one.

Key Takeaways

• Statutory holiday pay is the legally required pay for statutory annual leave, and the rules mainly come from the Working Time Regulations.
• Most workers are entitled to 5.6 weeks’ paid holiday, and for full-time staff that’s typically 28 days (which can include bank holidays depending on contract wording).
• For staff with fixed hours and pay, holiday pay is usually their normal pay during leave.
• For staff with variable hours or pay, holiday pay often needs a 52-week averaging approach, and for the core 4 weeks of statutory leave this may need to reflect “normal remuneration” such as sufficiently regular overtime or commission.
• Bank holiday handling is a common source of disputes, so make sure contract wording and internal processes are consistent (including where you offer a day in lieu).
• Keep clear records of entitlement, leave taken, and payments made, and be careful with holiday calculations when someone leaves.

This article is general information only and isn’t legal advice. If you’d like help reviewing your holiday pay approach, updating your contracts, or putting clear workplace policies in place, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.