Holiday pay has a wonderful ability to make something that sounds incredibly simple become remarkably complicated.
“How much holiday does this employee have?”
Good question.
But sometimes payroll has another one:
“What exactly does a day mean?” 😂
Because one employee’s day might be 7.5 hours.
Another employee might work three 12-hour shifts.
Someone else might work different hours every week.
Another person might work regular contracted hours but also regularly work overtime.
And then there are irregular-hours workers, part-year workers, changing working patterns and employees whose contracts, rotas and payroll records don’t appear to be speaking to each other.
Suddenly:
“They’ve taken two days’ holiday.”
isn’t quite enough information.
Holiday entitlement and holiday pay aren’t the same thing
This is probably the first important distinction.
There is how much annual leave somebody is entitled to.
And there is how much they should be paid when they take it.
They are connected, obviously.
But they’re not the same calculation.
Most workers are legally entitled to 5.6 weeks’ paid holiday each year, although contracts can provide more than the statutory minimum. GOV.UK
How that entitlement is expressed and calculated depends on the worker and their working pattern.
And how the holiday is paid can depend on how they normally work and what normally makes up their pay.
That’s why holiday isn’t simply:
28 days. Job done.
Payroll wishes it were. 😂
So… what constitutes a day?
This is where employers can sometimes run into trouble.
Imagine two employees.
One works five days a week, 7.5 hours each day.
Another works three longer days each week.
If they both book one day of annual leave, those days don’t necessarily represent the same number of working hours.
That’s why, particularly where working days vary in length, recording holiday in hours can sometimes give a much clearer picture than simply recording it in days.
But before payroll can process it correctly, somebody needs to establish the employee’s actual working arrangement.
What are their contracted hours?
How many days do they work?
Are those hours spread evenly across those days?
Do they have a fixed working pattern?
Has that pattern recently changed?
Because payroll shouldn’t invent the answer.
If we’re told:
“Jane has taken one day’s holiday.”
but Jane sometimes works 5 hours and sometimes works 10, our next question may reasonably be:
“Lovely. How many hours was she actually due to work that day?”
That’s not payroll being difficult.
That’s payroll trying to work out what we’re supposed to pay. 😂
Regular hours are generally the simpler end
Where somebody works regular hours and their pay does not vary, things are comparatively straightforward.
ACAS says that where a worker’s hours and pay are fixed, holiday pay is based on their usual pay. GOV.UK similarly explains that workers with regular hours and fixed pay receive their normal week’s pay. GOV.UK
But even with a regular-hours employee, employers still need good information.
If someone’s working pattern changes from five shorter days to four longer ones, for example, their weekly hours might remain exactly the same.
But suddenly a day of leave means something different.
That change needs to reach whoever is administering annual leave and payroll.
Then we have variable pay
This is where holiday pay gets more interesting.
Someone may have regular contracted hours but their actual earnings can include other elements.
Overtime.
Commission.
Certain payments linked to their role or professional status.
Current rules require particular elements of what is considered normal remuneration to be reflected in statutory holiday pay.
GOV.UK lists relevant elements including commission, regular overtime and certain payments relating to professional or personal status. GOV.UK
There is an additional wrinkle for regular-hours workers: the statutory 5.6 weeks consists of different elements under the Working Time Regulations, and the rules around the rate payable are not identical across all 5.6 weeks. GOV.UK currently describes at least four weeks as being paid at the worker’s normal rate, with the remaining 1.6 weeks capable of being paid at the basic rate. GOV.UK
That distinction is precisely why I don’t like sweeping statements such as:
“Holiday pay is just basic pay.”
It isn’t necessarily.
Irregular-hours workers have their own rules
For leave years beginning on or after 1 April 2024, specific rules apply to workers who legally meet the definition of an irregular-hours worker or part-year worker.
Their statutory holiday entitlement accrues based on hours worked, using the 12.07% accrual method, subject to the statutory rules. GOV.UK
Employers can also choose to use rolled-up holiday pay for qualifying irregular-hours and part-year workers.
That option does not mean rolled-up holiday pay can simply be used for everybody.
For regular-hours workers, rolled-up holiday pay is not permitted. GOV.UK
If rolled-up holiday pay isn’t being used for an irregular-hours or part-year worker, their holiday pay is generally based on their average pay over the previous 52 paid weeks, looking back up to 104 weeks where necessary to obtain those paid weeks. Acas
Which brings us back to information again.
Payroll needs to know what type of worker we’re dealing with before we can apply the correct method.
What about overtime?
This is another area where:
“We just pay their normal wage.”
can cause problems.
If overtime has been regularly paid, it can form part of the worker’s normal remuneration for holiday-pay purposes.
That doesn’t mean every isolated bit of overtime automatically changes every holiday payment.
It means employers need to understand the worker’s pay pattern and apply the appropriate holiday-pay rules rather than assuming basic contractual pay is always the end of the calculation. Acas
And that requires historical payroll information.
Which is becoming increasingly important.
Sleep-ins, additional duties and other payments
This is where real businesses rarely look as tidy as examples in a payroll manual.
Someone works their normal hours.
Then they regularly do additional duties.
Perhaps there are sleep-ins.
Perhaps regular additional shifts.
Perhaps allowances or premiums.
The question for holiday-pay purposes isn’t simply:
“Is this written into their basic salary?”
We need to understand what the payment is, how regularly it is received and whether it forms part of the remuneration that legislation requires to be reflected in holiday pay.
And sometimes that means payroll needs to ask questions rather than simply pressing the holiday button.
Changing working patterns need to reach payroll
This is one of the recurring themes in payroll.
An employee changes from five days to four.
Or from 37.5 hours to 30.
Or their weekly hours stay the same but they start working longer days.
Everybody knows.
Their manager knows.
HR knows.
The employee certainly knows.
And then payroll receives:
“Three days’ annual leave please.”
Three days based on which working pattern? 😂
The holiday entitlement may need reviewing when contractual arrangements change, and the way leave is recorded may need reviewing too.
It’s another example of why payroll and HR don’t need to do each other’s jobs…
but they absolutely need to talk to each other.
And now the records matter even more
There is another very important change employers need to know about.
From 6 April 2026, employers are legally required to keep records that are adequate to demonstrate compliance with statutory annual-leave entitlement and holiday-pay requirements.
Those records must be retained for six years from the date they are made. Legislation.gov.uk
The legislation does not prescribe one particular system or format. Employers can decide how the records are created and maintained.
But they need to be able to demonstrate that they’ve complied.
GOV.UK gives examples including documenting the annual leave taken and the holiday pay paid. GOV.UK
So the days of:
“I’m fairly sure Karen had about three days left…”
probably aren’t the record-keeping strategy I’d recommend. 😂
The calculation is only as good as the information behind it
Payroll software can calculate holiday pay.
What it can’t necessarily tell us is that the employee whose holiday we’re processing changed their working pattern six months ago and nobody updated the records.
It can’t decide whether a payment should form part of normal remuneration without the right information and setup.
It can’t know what somebody was due to work on a particular day unless their working pattern is recorded correctly.
And it can’t magically reconstruct years of missing holiday information.
That’s why holiday pay isn’t simply a payroll calculation.
There is a chain behind it:
Contract → Working pattern → Hours → Pay history → Holiday record → Payroll
If one of those pieces is wrong, the calculation at the end can be beautifully accurate…
and still produce the wrong answer.
So perhaps the question isn’t just “How much holiday do they have?”
It might also be:
What are their contracted hours?
What is their actual working pattern?
What does one day represent?
Do their earnings vary?
Are there regular additional payments that need considering?
Are they genuinely an irregular-hours or part-year worker under the legislation?
Has their working pattern changed?
Do our holiday records match our payroll records?
Could we evidence how we arrived at the calculation six years from now?
That last question has become considerably more important.
Because holiday pay isn’t simply about giving somebody the right number of days off.
It’s about making sure they receive the right entitlement, calculated under the right rules, paid at the right rate — with the records to support it.
And sometimes the hardest part isn’t calculating the holiday pay.
It’s establishing exactly what we’re calculating in the first place. 😂
Every Person. Every Payslip. Every Time.
