How is my holiday pay worked out if my hours vary?
Holiday pay is meant to reflect what you normally earn, not your basic rate. For anyone on variable hours, commission or regular overtime, that difference is real money.
- Difficulty
- intermediate
- Time
- 15 min
- Read
- 3 min
Short answer
If your pay varies, holiday pay is based on an average of your earnings over a reference period of recent worked weeks rather than on a nominal basic rate. Regular overtime, commission and shift premiums generally count towards that average. If your holiday pay is visibly lower than a normal week's pay, that is worth asking about.
The principle behind holiday pay is that taking leave should not cost you money. That sounds obvious, and it is the reason a string of cases established that pay elements you receive regularly — not just basic salary — belong in the calculation. Payroll systems do not always reflect this, particularly in smaller employers.
Step by step
- Establish whether your pay actually varies.Fixed salary with no variable elements gets normal pay for holiday, and there is nothing to work out. The rest of this applies if you have variable hours, commission, bonuses tied to work done, shift or unsocial-hours premiums, or overtime you work regularly.
- Find the reference period your employer uses.Averaging is done over a defined number of recent weeks in which you actually worked and earned. Weeks with no pay are skipped and the period looks further back to fill the gap. Acas publishes the current length of that period — it was extended a few years ago, so old guidance is wrong.
- Check what has been included in the average.Regularly worked overtime, commission that forms part of normal remuneration, and premiums for shifts or unsocial hours are generally included. Genuinely occasional one-off payments and expenses are not.
- Compare a holiday week against a normal week.The practical test is simple. Take three or four recent payslips for weeks you worked, and one for a week you took as leave. If the holiday week is significantly lower and your work pattern did not change, ask for the calculation.
- Ask payroll for the calculation in writing.Ask which reference period was used, which pay elements were included, and which were excluded. Most disputes evaporate at this point because the answer is either obviously right or obviously an oversight.
- Escalate through the grievance procedure if it is not resolved.An unresolved underpayment is a deduction from wages, which is a formal grievance matter and ultimately an employment tribunal one. Acas offers free early conciliation before any claim, and there are strict time limits.
- Watch for rolled-up holiday pay.This is where an uplift is added to every hour worked instead of paying for leave when it is taken. It is permitted for irregular-hours and part-year workers under the current rules, but it must be shown separately on the payslip. If you cannot see it, it is not being paid.
Common mistakes
- Assuming basic rate is the right rate — For anyone with regular overtime or commission, basic rate produces a holiday week that pays less than a working week — which is the exact outcome the rules exist to prevent.
- Waiting years before raising it — Tribunal time limits for unlawful deductions are short and run from the deduction. A long-running underpayment does not stay claimable indefinitely.
Questions people ask
Does overtime count towards holiday pay?
Regular overtime generally does, because it forms part of what you normally earn. Genuinely occasional, exceptional overtime generally does not. The test is whether it is a normal part of your remuneration, not whether it is contractually guaranteed.
What is rolled-up holiday pay?
An uplift added to each hour worked instead of paying holiday when leave is taken. It is now allowed for irregular-hours and part-year workers, but only if it is calculated correctly and itemised separately on the payslip.