Working Time Regulations 1998 (implementing EU Working Time Directive) require that holiday pay reflects 'normal remuneration'. Following Supreme Court rulings (Lock v British Gas 2016, Flowers v East of England Ambulance Trust 2019), the following must be included in the first 4 weeks of statutory holiday pay:
For workers with variable pay, calculate holiday pay using the average pay over the 12 weeks prior to the start of the holiday — excluding any weeks where no pay was received.
The 12-week reference period is used for the first 4 weeks of statutory leave (Regulation 13 leave — the 'European' element). The remaining 1.6 weeks (Regulation 13A — the UK-only element) can be calculated differently under domestic law. Many employers apply the 12-week reference for simplicity.
Frequently Asked Questions
Must holiday pay include overtime?
Yes, for the 4 weeks of Regulation 13 leave. Regular voluntary overtime that is 'sufficiently regular and settled' must be included in holiday pay. The test is whether the overtime is genuinely regular — if you consistently work extra hours weekly or monthly, it's 'normal' pay and must be included.
What is the 12-week reference period for holiday pay?
When calculating holiday pay for workers with variable hours or pay, use the average weekly pay over the 12 weeks immediately before the holiday. Only count weeks where work was done — skip weeks of annual leave or sick leave. Count back until you have 12 working weeks.
How is irregular hours workers' holiday pay calculated from 2024?
From April 2024, irregular hours workers accrue holiday at 12.07% of hours worked in each pay period. Pay for each day of holiday is average hourly rate over the previous 52 working weeks (excluding weeks with no pay).
Does commission count in holiday pay?
Yes. Regular commission payments count as normal pay and must be included in holiday pay calculations for the first 4 weeks of statutory leave. This was confirmed in Lock v British Gas 2016. Employers must calculate average commission over the 12-week reference period.
Is contractual overtime always included in holiday pay?
Guaranteed contractual overtime (you must work it, employer must offer it) has always been included. It's settled law now that regular non-guaranteed (employer doesn't have to offer, but you regularly work it) and even regular voluntary overtime must also be included under the 'normal pay' principle.
What happens if an employer underpays holiday pay?
The worker has a claim for unlawful deduction from wages under the Employment Rights Act 1996. Claims must be brought to Employment Tribunal within 3 months (minus 1 day) of the last deduction. A series of connected underpayments can be claimed together — though a gap of more than 3 months between deductions breaks the chain.
Does the rule apply to zero-hours workers?
Yes. Zero-hours contract workers are entitled to statutory annual leave (5.6 weeks equivalent) and holiday pay must reflect normal pay including regular overtime. From April 2024, the 12.07% accrual method specifically provides a simple way to calculate holiday entitlement and pay for irregular hours workers.
How should employers calculate the 12-week average?
Sum total gross pay (including overtime, commission, shift premiums) over the 12 working weeks before holiday. Divide by 12 to get average weekly pay. Divide by 5 (or contracted days) to get daily rate. Multiply by days of holiday taken. Software: most payroll systems updated to do this automatically.