Holiday Pay: Simple in Theory, Complex in Practice

Calculating holiday pay should be straightforward—but in reality, it’s anything but. With constantly evolving legislation, varying pay structures, and complexities around overtime, commission, and irregular hours, ensuring compliance can feel like navigating a minefield.

Why Getting Holiday Pay Right Matters

🔹 Incorrect calculations can lead to underpayments, legal disputes, and costly tribunal claims.

🔹 The 12.07% method ban and changes to rolled-up holiday pay have left many businesses scrambling to adjust.

🔹 Case law and regulatory updates continue to reshape how holiday pay must be calculated—are you keeping up?

The rules surrounding holiday pay are not just about ticking boxes—they are about fairness, compliance, and employee satisfaction. Employers must ensure that workers receive their full entitlement, taking into account variable pay elements such as overtime and bonuses. Failure to do so could result in significant back-pay claims and reputational damage.

Key Challenges in Holiday Pay Calculations

📌 The 52-Week Reference Period – Employers must average earnings over the previous 52 weeks (ignoring unpaid weeks) to calculate holiday pay correctly. This replaces older, more simplistic methods and ensures a fair reflection of employees' usual earnings.

📌 Inclusion of Overtime & Commission – Holiday pay must reflect normal remuneration, which means including regular overtime, bonuses, and commission. This has been reinforced through case law, including the landmark Bear Scotland ruling.

📌 Changes to Rolled-Up Holiday Pay – Rolled-up holiday pay (where holiday pay is included in the worker’s hourly rate rather than being paid when leave is taken) has been controversial. While previously ruled unlawful in most cases, recent changes mean it may be reinstated for certain workers under new government reforms.

📌 Casual & Irregular Hours Workers – With the 12.07% method no longer valid, businesses need to ensure pro-rata holiday pay calculations are done correctly, taking into account the latest Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023.

How TCW Accountancy and Training Solutions Can Help

At TCW Accountancy and Training Solutions, we take the stress out of payroll compliance by ensuring your business stays up to date with holiday pay regulations. Whether you need:

✔️ Accurate holiday pay calculations tailored to your workforce

✔️ Payroll outsourcing to ensure full compliance with UK legislation

✔️ Training for your team to confidently handle payroll complexities

We provide expert support and guidance to help businesses navigate the evolving landscape of holiday pay regulations with confidence.

📞 Get in touch today to discuss how we can support your business and keep your payroll compliant!