How to Calculate Holiday Pay

Whether you’re an employee who wants to understand how your pay is calculated or if you’re interested in learning about how accountants and payroll professionals work out the amount of money owed to a worker during their time off, this article will explain everything you need to know about how to calculate holiday pay. If you’re still not sure, then contact one of our specialist accounting experts to talk about the payroll services we offer.

How is a week’s holiday pay calculated?

Holiday pay for the week will start on a Sunday and end on a Saturday so the holiday pay you’re owed will be calculated using the last full week you worked. This could end either on or before the last day of your paid holiday. However, this depends on a number of factors, including your working pattern, your contracted hours and the terms of the contract you signed initially.

But as outlined under the Employment Rights Act 1996, one week’s pay is the amount of money that needs to be paid to an employee on the condition that they’ve worked the normal hours for at least one week. This ensures that employees who wish to take leave from work will still be paid their usual rate for a period of four weeks.

Some employers will give their workers a holiday allowance, in addition to any Bank Holidays that occur that year. These too should be paid by your employer, unless you’re required to use your holiday entitlement to secure them as a day off, according to Citizens Advice.

Holiday pay based on your working pattern: fixed hours vs. no fixed hours

The amount of holiday pay you’re entitled to will depend on the number of hours you work and the terms of the contract you have signed. Usually, those who have a full time job who work fixed hours won’t notice a difference in their monthly pay if they take paid leave, whereas those who don’t work fixed hours may see a considerable change in the wages they receive. Let’s discuss how they differ when it comes to holiday pay.

Fixed hours

Whether you work full time or part time, if you work fixed hours then your holiday pay will be calculated based on your current and usual rate. This means that, if someone worked a 37-hour week and gets paid £400 over that period of time and they wish to take five working days holiday, then they should still receive that £400 as holiday pay.

Where it’s not overly difficult for someone in-house to do your payroll and work out holiday pay for each of your employees, it’s something that a trained accountant can do in no time for hundreds of workers. It gives business owners complete peace of mind that their finances and employee wages are being managed effectively by a dedicated accounting professional, such as us here at RLTP Accountants.

No fixed hours

It’s a little more complicated to calculate holiday pay if someone doesn’t have fixed working hours. This is because the amount of holiday pay they receive will then have to be based on the average pay that was received over the previous year, which is usually narrowed down to 52 weeks. This usually applies to someone who works a zero-hours contract or who experiences regular shift pattern changes.

There are some professions where people might not receive any pay at all for at least one week out of the 52 over the course of a year. If this happens, then an earlier week will be used in its place in order to accurately calculate the holiday pay owed. Where this isn’t as straightforward to calculate in comparison to fixed hours contracts, it can be easily calculated by experienced finance experts, and RLTP Accountants are just the team to do it for you.

Holiday pay for your first year in a new job

Holiday pay is worked out slightly differently for your first year on the job. This also depends on how early or late in the year you started your new role. You might also notice that your holiday allowance isn’t at its highest as that too is calculated depending on the month you started the job. Instead of holiday pay being calculated based on the usual 52 week time period, it will be calculated based on the number of full weeks you have been employed for.

For example, let’s say you’ve been employed for 30 weeks, your employer will take the average pay received over those 30 weeks and average that out to come up with your holiday pay entitlement. To ensure your holiday pay is fair, your employer will likely consider the following things:

    How much you’re paid for your role

    How much of that pay you have already received

    What other people in the same role are paid for their holidays

What should I do if I think my holiday pay should be different?

If you suspect that you haven’t received enough holiday pay or if you think you have been given too much, you must notify your employer as soon as you’re able. You should also check your contract and re-read the section on holiday pay and entitlement. If it turns out that you haven’t made a mistake, then your employer must rectify holiday pay issues within a reasonable timeframe. If, in the unlikely event that your employer doesn’t conform, you have grounds to formally raise a grievance.

RLTP Accountants has a highly-experienced, fully-qualified team of professional accountants at the helm of our operations. We endeavour to provide unrivalled accountancy services to customers throughout Nottingham, Derby and the surrounding areas. For more information about how we can help your small or start up business today, regardless of the industry you work in, then get in touch with a member of our specialist team – we’re always pleased to hear from you.