What Is Holiday Pay in the UK? A Complete Guide for Employers and Employees
Holiday pay is a key part of UK employment law, yet it’s an area that often causes confusion for both employers and employees. From entitlement rules to recent changes in how pay is calculated, staying compliant is essential to avoid disputes and HMRC issues.
This guide breaks down the essentials of holiday pay in the UK for 2025, helping you understand what’s owed, how it’s calculated, and what employers need to know.
How Much Holiday Are Employees Entitled To?
In the UK, most employees are legally entitled to:
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5.6 weeks of paid holiday per year (also called “statutory annual leave”).
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For a full-time worker, this equals 28 days (including bank holidays if the employer chooses).
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Part-time workers get the same entitlement pro rata based on hours worked.
Example: If someone works 3 days a week, their holiday entitlement is 3 × 5.6 = 16.8 days per year.
Recent Changes to Holiday Pay Rules (2024–2025 Updates)
There have been important legal updates to how holiday pay is calculated, especially for irregular hours and part-year workers (like zero-hours contracts).
Key updates include:
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12.07% Method: Employers can use this to calculate holiday entitlement for irregular or part-year workers.
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Rolled-Up Holiday Pay: From April 2024, employers can lawfully include an additional amount in pay (clearly shown on payslips) instead of paying holiday separately, if agreed.
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Simplification of Record Keeping: Employers must still keep accurate records but reporting is now more streamlined.
How Is Holiday Pay Calculated?
Holiday pay should reflect an employee’s normal pay, not just basic salary. This includes:
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Overtime (if it’s regular).
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Commission and bonuses (if linked to work).
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Shift allowances.
Standard Calculation:
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For employees with fixed hours: Paid at their normal hourly/daily rate.
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For employees with variable hours: Based on the average pay over the last 52 weeks (ignoring weeks not worked).
Do Bank Holidays Count as Holiday?
Employers don’t have to give bank holidays as paid leave on top of statutory entitlement. However, many contracts do include them. If included, they count towards the 5.6 weeks entitlement.
Employer Responsibilities
Employers must:
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Ensure employees receive their correct entitlement.
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Calculate holiday pay fairly in line with updated legislation.
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Show holiday pay clearly on payslips.
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Keep records of holiday taken and pay given.
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Avoid unlawful practices, such as forcing employees to take unpaid leave when they are entitled to paid time off.
Failing to comply can lead to employment tribunal claims and reputational damage.
Holiday Pay and Payroll
Holiday pay must be processed correctly through payroll systems:
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Deducting Income Tax and National Insurance.
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Reporting under Real Time Information (RTI).
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Recording holiday pay separately if using rolled-up pay.
Payroll software or expert payroll management ensures accuracy and compliance with these complex rules.
Final Thoughts
Holiday pay is not just a legal requirement; it’s an important employee right that protects fairness in the workplace. With updated rules for irregular hours workers and new options like rolled-up pay, employers must stay informed to remain compliant.
For many businesses, outsourcing payroll is the simplest way to handle calculations, reporting, and legal compliance. That’s why professional Payroll Services in London are increasingly relied upon — ensuring every payslip is accurate, every entitlement is correct, and businesses stay on the right side of UK employment law.