How should an employer calculate a week's pay in relation to holiday pay entitlement?

 

The rules for calculating a week's pay for the purposes of holiday pay are set out in ss.221 to 224 of the Employment Rights Act 1996, as modified by the Working Time Regulations 1998. For salaried employees whose pay does not vary, a week's pay is the amount due under their contract. For workers whose pay varies, a week's pay is based on their average weekly earnings. The average is taken over the 52-week period ending with the week immediately preceding the date on which their holiday begins, discounting any weeks in which no pay was received. Earlier paid weeks should be included to bring the aggregate up to 52, going back no further than 104 weeks. 

Regulation 16(3ZA) of the Working Time Regulations 1998 specifies that a week's pay must include:

  • commission and other payments intrinsically linked to the performance of tasks that the worker is contractually obliged to carry out;
  • payments for professional or personal status relating to length of service, seniority or professional qualifications; and
  • other payments, such as overtime payments, that have been regularly paid to a worker in the 52 weeks before the calculation date.

Regulation 16(3ZA) applies only to the four weeks' annual leave that employees are entitled to under reg.13 of the Working Time Regulations 1998 (and, for leave years beginning on or after 1 April 2024, to all accrued annual leave for irregular hours and part-year workers under reg.15(B)).

For the additional 1.6 weeks' annual leave under reg.13A, a week's pay is based on the employee's basic pay; it is not necessary to include elements such as commission or non-guaranteed overtime. However, to make the administration of holiday pay easier, employers may choose not to make a distinction between the different types of annual leave.