How do you calculate Holiday Pay?

Holiday pay is an important aspect of employment law in the United Kingdom. It is therefore important for employers to understand how to calculate it correctly. So, we figured we would take a look at how to calculate holiday pay correctly in a nut shell. Here goes!

Knowing the entitlement

Employees are entitled to a minimum of 5.6 weeks of paid annual leave per year. This leave must be paid at their normal rate of pay. So, to calculate holiday pay, you first need to determine the employee’s normal rate of pay. This is their average pay over the previous 12 weeks, excluding any weeks in which they did not work. Once you have determined this, you then need to calculate the holiday pay for each week of leave. For a standard working week, this will be the employee’s normal rate of pay. However, if the employee works overtime, receives bonuses or commission, or has other allowances, these must also be included in the calculation of holiday pay.

A working example of how to calculate holiday pay

Let’s assume that an employee, John, works 40 hours per week and earns a basic rate of £10 per hour. In the previous 12 weeks, John has worked 40 hours per week and has not taken any leave. To calculate John’s holiday pay, we first need to determine his normal rate of pay, which is calculated as follows:

£10 per hour x 40 hours per week = £400 per week

So, John’s normal rate of pay is £400 per week.

Now that we know John’s normal rate of pay, we can calculate his holiday pay for one week of leave as follows:

£400 per week = £400 holiday pay per week

What if my staff also receive tips, commission or overtime?

It is important to note that if your staff receive overtime, bonuses or commission, these must also be taken into account when you calculate holiday pay. So, continuing with our example above of John, if he received £50 in overtime in the previous 12 weeks, his holiday pay would be calculated as follows:

£400 per week + £50 per week = £450 holiday pay per week

What else do you need to know when calculating holiday pay?

Finally, it is worth mentioning that the calculation of holiday pay is subject to change. The UK government reviews the rules and regulations surrounding holiday pay on a regular basis, and employers must ensure that they are up to date with the latest information. In conclusion, calculating holiday pay can be a complex process, but it is important for employers to get it right.

By taking the time to understand the rules and regulations surrounding holiday pay, you can ensure that your employees receive the correct pay for their leave, and that you are compliant with UK employment law. Alternatively, you can have experts in the field do this for you! Qualified professionals like ourselves are more than happy to take the hassle out of calculating holiday pay for you.

Please do get in touch to see how we can help on 01243 782 423, or email us from our contact page and someone will be in touch! We also update our YouTube Channel regularly with new content, see here: Lewis Brownlee YouTube channel