Calculating Holiday Pay: The Basics

Posted in : Back to Basics on 23 July 2018
Andrew Spratt
A&L Goodbody
Issues covered:

Andrew Spratt, Associate Solicitor in the Employment & Incentives team, A&L Goodbody, offers a brief summary on the basics of calculating holiday pay.

Andrew refers to the Working Time Regulations 1998. He considers some influential cases including Bear Scotland, British Gas v Lock and the pilots at British Airways, concerning guaranteed, non-guaranteed and voluntary overtime. Andrew advises employers who are still paying only base salary for holidays or have varying rates of pay for various shifts to take legal advice where possible, warning you could be hit with a very big bill as there is an ongoing and accruing liability for companies who continue to act in this way.


This morning, I’m going to speak a bit about holiday pay and the calculation of holiday pay. The Working Time Regulations of 1998 introduced the idea of 5.6 weeks of leave or 28 days leave for a full-time employee. And for the first 12 or 13 years of that piece of legislation, for most employers, the majority paid annual leave at the rate of best pay and excluded other payments.

Guaranteed, Non-Guaranteed and Voluntary Overtime

Then came the cases of Bear Scotland and British Gas v Lock and the pilots at British Airways. This changed the face of holiday pay in the UK for potentially a generation. The upshot of those cases, in its simplest forms, is that if you as an employee receive a salary over and above your base pay, then that should be included in your calculation for holiday pay.

The relevant case law confirmed that guaranteed overtime, where it’s within your contract and you’re guaranteed to receive overtime each week, or non-guaranteed overtime, where you may be required, or it may be offered and you may take it, or voluntary overtime, you apply for overtime, those payments and those additional hours should be included in holiday pay calculation. Effectively, all pay components of an employee should be included in the holiday pay calculation.

Enhanced Shift Premium and Holiday Pay Audits

For many employees, they are entitled to receive an enhanced shift premium, or, perhaps, time and a half for various shifts. Again, those sorts of payments, increased in pay, should be included in the calculation, and the calculation that I’m talking about is based on a 12-week average immediately prior to the period of leave. Often, new payroll software will now automatically calculate this on an ongoing and rolling basis. And many of our clients have now, with our help, undertaken holiday pay audits to evaluate potential historic loss, and have then, where it has been appropriate, made changes to the way in which they pay holidays and to evaluate any future liability.

Beware - Base Salary for Holidays

For all employers who are still paying only base salary for holidays, or their staff do undertake paid overtime, or have enhanced rates of pay for various shifts, then what we would say to them is that you need to be taking legal advice. There’s a load of noise around this issue. It seems to have subsided in the meantime. We don’t know when this is going to arise again, and in the meantime, there is an ongoing and accruing liability for companies who continue to act in this way, and you could be hit with a very big bill sometime in the future.

This issue isn’t completely settled yet, and so they are continuing to have cases around the gig economy, so people like Deliveroo and Uber. Those decisions could still have an impact on holiday pay. And so whilst it’s relatively settled, this could still have further ramifications in the future.


Note: Andrew's colleague, Shirley Blair, Associate, A&L Goodbody, is presenting a session entitled, 'Spotting the Signs of Autism in the Workplace' at the Annual Review of Employment Law Conferences 2018 taking place on:

Early Bird Offer is available for this event - register now to save up to £70


This article is correct at 23/07/2018

The information in this article is provided as part of Legal-Island's Employment Law Hub. We regret we are not able to respond to requests for specific legal or HR queries and recommend that professional advice is obtained before relying on information supplied anywhere within this article.

Andrew Spratt
A&L Goodbody

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