Our employees work a 40 hour week but also receive a set performance bonus each week if they meet set targets. Should their holiday pay be based on pay for 40 hours per week or should it also include the bonus?

Where employees have normal working hours (40 hours as in this case) but their pay varies according to the amount of work done, they are entitled to holiday pay based on their average pay during those normal working hours over the previous 12 working weeks.

Where pay is related to output (to meeting targets) and that output is connected to performance, pay varies with the amount of work done. In this case, putting this another way, the performance bonus appears to be an essential element of the remuneration you need to pay them once they have worked their normal 40 working hours and met the targets.

On this basis, it is likely that their average pay should include those weeks when the bonus