Holiday pay for variable hours workers

Holiday pay for workers with variable hours (such as term-time workers) or pay is an area that has seen important changes in recent years, so it is worth setting out the current position clearly.

The core principle:

Holiday pay should reflect what the worker would have earned had they been working, rather than being at a reduced or flat rate. For workers whose pay or hours vary from week to week, this means the calculation must account for that variability.

The current legal framework:

Under the Working Time Regulations 1998 (as amended), the calculation method depends on the type of holiday entitlement being considered. Since 1 January 2024, following the Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, the position is as follows.

1. For the first four weeks of leave (derived from EU law, under regulation 13), holiday pay must reflect “normal remuneration.” This includes not just basic pay but also regular overtime, commission, and other payments intrinsically linked to the performance of tasks the worker is obliged to carry out. The reference period used to calculate the average is 52 weeks (ignoring any weeks in which no pay was earned), looking back from the date the holiday begins.

2. For the additional 1.6 weeks of leave (the domestic top-up under regulation 13A), the same 52-week reference period applies, but the calculation may be based on a week’s pay as defined under sections 221 to 224 of the Employment Rights Act 1996. In practice, for variable hours workers, the effect is similar: you average earnings over up to 52 paid weeks.

3. For workers who have been employed for fewer than 52 weeks, the reference period is however many complete weeks they have actually worked.

Rolled-up holiday pay:

Since 1 January 2024, employers are once again permitted to use rolled-up holiday pay for irregular hours workers and part-year workers. This means the employer adds a 12.07 per cent uplift to pay in each pay period, rather than paying separately when holiday is taken. If your employer uses this method, it should be clearly shown on your payslip. This is lawful provided it genuinely covers the correct entitlement and is transparent.

What counts as “pay” for the calculation:

Following the Supreme Court decision in British Gas Trading Ltd v Lock and related case law, holiday pay for the four weeks of EU-derived leave should include regular overtime (whether guaranteed, non-guaranteed, or voluntary if worked with sufficient regularity), commission, and other regular payments. It does not generally include genuinely occasional or one-off payments, or expenses.

Practical points to check:

1. Look at your payslips to see whether your holiday pay appears to be calculated as an average of recent earnings or simply at a flat basic rate. If it is at a flat rate that does not reflect your typical variable earnings, it may be underpaid.

2. Check whether your employer is using rolled-up holiday pay and, if so, whether the 12.07 per cent uplift is being applied and shown clearly.

3. If you suspect underpayment, calculate what your average weekly pay has been over the previous 52 weeks of actual work, including overtime and any regular additional payments, and compare this with what you have been paid when on holiday.

4. If there is a shortfall, the first step would normally be to raise it with your employer informally, then in writing if needed, explaining the basis for the calculation.

5. If that does not resolve it, a claim for unlawful deduction from wages can be brought in the employment tribunal. The normal time limit is three months less one day from the date of the most recent underpayment, though a series of deductions can sometimes extend the period that can be claimed for.

One important caveat: the distinction between irregular hours workers and those with fixed or predictable patterns matters for which calculation method applies, particularly in relation to rolled-up holiday pay. If your hours genuinely vary week to week, you are likely to fall into the variable or irregular hours category, but if your hours are set by a regular rota and are broadly predictable, the standard calculation may apply instead.

If you can share more detail about your particular working pattern, contract terms, and what your employer is currently paying you when you take holiday, I can give you a more tailored view.