Holiday Pay in the UK: How to Calculate It Correctly After Harpur Trust

Holiday pay in the UK should be straightforward — pay workers what they would have earned if they had been working. In practice, it is anything but. A series of court rulings, most notably the Supreme Court’s decision in Harpur Trust v Brazel (2022), combined with ongoing legislative reform through the Employment Rights Bill, has created a landscape where even experienced payroll professionals can get tripped up.

Getting holiday pay wrong is not a minor administrative error. It leads to employment tribunal claims, HMRC enforcement action, and in some cases, liability stretching back years. This guide explains how to calculate holiday pay correctly for different worker types, what the Harpur Trust ruling changed, how the government’s reforms affect you, and — crucially — walks you through practical calculation examples with the actual maths.

The Fundamental Principle

The core legal principle, established through EU case law (most notably Williams v British Airways and British Airways v Williams) and confirmed in UK case law, is this:

Workers must receive their normal remuneration during annual leave. Holiday pay should put the worker in the position they would have been in had they been working, rather than on leave.

This sounds simple, but it has profound implications for how holiday pay is calculated — particularly when earnings vary from week to week.

The Harpur Trust v Brazel Ruling: What Changed

In July 2022, the Supreme Court ruled in Harpur Trust v Brazel that part-year workers are entitled to 5.6 weeks of annual leave calculated on the basis of their average weekly earnings — without any pro-rating for the weeks they did not work.

The Facts

Mrs Brazel was a music teacher employed on a permanent contract but only worked during school term times — approximately 32 weeks per year. Her employer calculated her holiday pay by taking her total annual earnings, multiplying by 12.07%, and paying that as holiday pay. This was the standard approach recommended in the ACAS guidance at the time.

The Supreme Court’s Decision

The Supreme Court rejected this approach. It held that:

1. There is no statutory basis for pro-rating the annual leave entitlement of part-year workers
2. The correct method is to calculate average weekly pay over the statutory reference period (then 12 weeks, now 52 weeks under the Employment Rights (Employment Particulars and Paid Annual Leave) (Amendment) Regulations 2018), counting only the weeks in which the worker was actually paid
3. Weeks in which the worker earned nothing are excluded from the reference period — you keep going back until you find the required number of paid weeks

The Impact

The result was that part-year workers could end up receiving proportionally more holiday pay relative to their total annual earnings than full-year workers. In Mrs Brazel’s case, her holiday pay amounted to approximately 17.5% of her annual earnings rather than the 12.07% her employer had been paying.

This affected a significant number of workers, including:

• Term-time-only employees in schools and universities
• Seasonal workers
• Casual and zero-hours contract workers
• Anyone with significant gaps between working periods

The Government’s Response: Employment Rights Bill Reforms

The government responded to the Harpur Trust ruling by including holiday pay reforms in the Employment Rights Bill. The key changes (which are expected to come into force in 2026 or 2027 — check for the latest implementation timeline) include:

Rolled-Up Holiday Pay as a Statutory Option

For irregular hours workers and part-year workers, employers will be able to use rolled-up holiday pay — that is, paying an additional 12.07% on top of each payment of wages in lieu of separate holiday pay when leave is taken. This was previously considered unlawful following EU case law, but with post-Brexit legislative freedom, it is being reintroduced as a legitimate option.

The 12.07% Accrual Method

The 12.07% figure comes from the following calculation:

5.6 weeks of annual leave ÷ (52 weeks in a year - 5.6 weeks of leave) = 5.6 ÷ 46.4 = 12.07%

Under the reforms, this method will have a clear statutory basis for irregular hours and part-year workers, effectively reversing the Harpur Trust outcome for future cases.

Who Qualifies as an “Irregular Hours Worker”?

The legislation defines this as a worker whose paid hours are wholly or mostly variable in each pay period under their contract. This will capture:

• Zero-hours contract workers
• Workers on variable-hours contracts
• Bank staff
• Most casual workers

Who Is a “Part-Year Worker”?

A worker who, under their contract, is required to work only part of the year and there are periods within that year of at least a week where they are not required to work and are not paid. This captures term-time workers, seasonal staff, and similar arrangements.

Calculating Holiday Pay: Method by Worker Type

1. Salaried Employees on Fixed Hours

This is the straightforward case. Holiday pay equals their normal weekly pay.

Example:

• Sarah earns £45,000 per year on a five-day week
• Weekly pay = £45,000 ÷ 52 = £865.38
• Each day of holiday pay = £865.38 ÷ 5 = £173.08

If Sarah’s contract includes only basic salary with no variable elements, this is all you need to calculate.

2. Workers With Variable Earnings (Current Law)

For workers whose pay varies — due to overtime, commission, shift allowances, or variable hours — you must calculate holiday pay using a 52-week reference period (introduced in April 2020, replacing the previous 12-week period).

The method:

1. Look back from the start date of the holiday at the last 52 weeks in which the worker was paid
2. Add up total earnings across those 52 weeks (including relevant variable elements — see below)
3. Divide by 52 to get average weekly pay
4. That figure is the weekly holiday pay rate

Important: If the worker was not paid in some of those weeks (because they did not work), you skip those weeks and go further back until you have 52 paid weeks. You can go back up to 104 weeks in total.

Example:

• James is on a zero-hours contract at a restaurant
• Over the last 52 weeks in which he was paid, his total earnings were £18,720
• Average weekly pay = £18,720 ÷ 52 = £360.00
• Each week of holiday pay = £360.00
• His total statutory holiday pay for the year = £360.00 × 5.6 = £2,016.00

3. Irregular Hours Workers (Under the Reforms — 12.07% Method)

Once the Employment Rights Bill reforms are in force, for irregular hours and part-year workers, employers will be able to use the accrual method:

Rolled-up holiday pay example:

• Emma works variable shifts as a bank nurse
• In March, she earns £2,400
• Rolled-up holiday pay = £2,400 × 12.07% = £289.68
• Total payment for March = £2,400 + £289.68 = £2,689.68
• Emma is then expected to take her accrued leave without additional holiday pay (since it has already been paid)

Accrual method example:

• Emma accrues leave at 12.07% of hours worked
• In March, she works 120 hours
• Leave accrued = 120 × 12.07% = 14.48 hours of paid leave

4. Part-Year Workers (Current Law — Harpur Trust Still Applies)

Until the reforms come into force, the Harpur Trust method applies:

Example:

• David is a term-time-only teaching assistant working 35 weeks per year
• He earns £350 per week when working
• To calculate his holiday pay, take the last 52 weeks in which he was paid
• Since he only works 35 weeks per year, you need to go back approximately 77 calendar weeks to find 52 paid weeks
• If his average weekly pay across those 52 paid weeks is £350, his weekly holiday pay is £350
• His annual holiday pay = £350 × 5.6 = £1,960
• His annual earnings from working = £350 × 35 = £12,250
• Holiday pay as a percentage of earnings = 1,960 ÷ 12,250 = 16% (significantly more than 12.07%)

This is exactly the outcome that the Employment Rights Bill reforms aim to change.

What Must Be Included in Holiday Pay?

Following a series of landmark cases, holiday pay for the four weeks derived from EU law (Regulation 13 leave) must include:

Regular Overtime

Following Bear Scotland v Fulton (2015), regular overtime must be included in holiday pay calculations — even if it is technically “voluntary.” The test is whether the overtime is sufficiently regular and settled to be considered part of normal remuneration.

What counts as regular? There is no fixed threshold, but if overtime is worked most weeks over a sustained period, it is almost certainly regular. Occasional overtime at peak periods is less likely to qualify.

Commission

Following Lock v British Gas (2017), results-based commission must be included in holiday pay. The calculation should reflect what the worker would have earned in commission had they been working rather than on leave.

Allowances and Supplements

Payments that are intrinsically linked to the performance of tasks under the employment contract must be included. This covers:

• Shift allowances and unsocial hours premiums
• Travel allowances paid regularly as part of the role
• Professional qualification supplements
• Team leader or supervisory allowances

What Is Not Included

• Genuinely one-off, non-recurring payments
• Expenses reimbursements (these are not pay)
• Redundancy payments
• Tips and gratuities (though this is a grey area)
• Employer pension contributions

The Regulation 13 vs Regulation 13A Distinction

An important nuance: the requirement to include overtime, commission, and allowances applies to the first four weeks of annual leave (derived from EU law under Regulation 13 of the Working Time Regulations). The additional 1.6 weeks (Regulation 13A leave) can be calculated on basic pay only.

In practice, many employers calculate all 5.6 weeks on the same basis for simplicity, and this approach carries no legal risk (you are paying more, not less). However, if you want to save costs, you can differentiate — just make sure your systems can handle the split.

Step-by-Step Calculation Example: Worker With Variable Pay

Let us work through a complete example for a worker with basic pay plus regular overtime and a shift allowance.

Worker profile:

• Rachel works as a warehouse operative
• Basic hourly rate: £12.50
• She regularly works 38 hours per week (37.5 basic + some overtime)
• Shift allowance: £25 per week
• She is about to take one week of annual leave

Step 1: Gather her pay data for the last 52 weeks in which she was paid.

Step 2: For each week, calculate total relevant pay:

• Basic pay: hours worked × £12.50
• Overtime pay: overtime hours × overtime rate (e.g., £12.50 × 1.5 = £18.75)
• Shift allowance: £25

Step 3: Suppose the totals across 52 paid weeks are:

• Total basic pay: £24,375 (averaging 37.5 hours × £12.50 = £468.75/week)
• Total overtime pay: £4,875 (averaging about 5 hours overtime at £18.75/week = £93.75/week, but variable)
• Total shift allowance: £1,300 (52 × £25)
• Grand total: £30,550

Step 4: Average weekly pay = £30,550 ÷ 52 = £587.50

Step 5: Rachel’s holiday pay for one week = £587.50

If you had calculated it on basic pay alone (£468.75), you would have underpaid her by £118.75 per week of holiday — and across 5.6 weeks, that is a potential underpayment of £665.

Common Employer Mistakes That Lead to Tribunal Claims

1. Calculating Holiday Pay on Basic Pay Only

This remains the single most common error. If your workers earn regular overtime, commission, or allowances, you must include these in holiday pay calculations for at least the first four weeks of leave.

2. Using a 12-Week Reference Period

The reference period changed from 12 weeks to 52 weeks in April 2020. Some payroll systems and manual processes have not been updated. Using a 12-week period is not compliant and tends to produce less accurate averages, particularly for seasonal workers.

3. Not Skipping Unpaid Weeks

When calculating the 52-week average, you must skip weeks in which the worker earned nothing and go further back. Including zero-pay weeks in the average artificially deflates the holiday pay figure.

4. Ignoring the Harpur Trust Ruling for Part-Year Workers

Until the Employment Rights Bill reforms come into force, you cannot pro-rate holiday pay for part-year workers using the 12.07% method. If you have part-year workers, review their holiday pay calculations now.

5. Not Paying Holiday Pay for Overtime Workers Who Take Leave

Some employers pay only basic salary when workers take annual leave, even though those workers regularly earn more through overtime. This creates an unlawful deduction from wages claim and can result in back-pay liability for up to two years (or longer if there is an unbroken series of deductions).

6. Confusing Rolled-Up Holiday Pay (Current Law)

Until the Employment Rights Bill reforms explicitly permit it for irregular hours workers, rolled-up holiday pay is technically non-compliant. If you are already using it, the payment counts towards your holiday pay obligation, but it does not discharge the duty to allow the worker to actually take leave.

7. Failing to Pay Holiday Pay on Termination

When a worker leaves, they are entitled to payment in lieu of any accrued but untaken annual leave. This must be calculated correctly, including variable pay elements for the Regulation 13 portion.

Practical Recommendations

1. Audit your current calculations — check whether you are including overtime, commission, and allowances in holiday pay for the Regulation 13 portion
2. Ensure your payroll system uses a 52-week reference period (or the correct number of available paid weeks if less than 52)
3. Review part-year workers — understand the Harpur Trust impact and prepare for the legislative reforms
4. Keep detailed pay records — accurate records of all pay components make holiday pay calculations defensible
5. Consider simplifying — paying all 5.6 weeks on a full-pay basis (including variable elements) removes the need to split Regulation 13 and 13A leave and reduces the risk of error
6. Monitor the Employment Rights Bill — the implementation timeline for holiday pay reforms will directly affect how you calculate pay for irregular hours and part-year workers

How Leave Balance Simplifies Holiday Pay Tracking

Accurate holiday pay calculation starts with accurate leave tracking. If you do not know precisely how many days each worker has taken, when they took them, and what their working pattern is, your holiday pay calculations will be built on shaky foundations.

Leave Balance provides the reliable leave data that your payroll process depends on. Track entitlements, accruals, and usage for every worker — including part-time, irregular hours, and part-year workers with different accrual rules. Custom policies per worker type mean you can configure the correct entitlement method for each group.

With multi-country support, you can handle UK holiday pay rules alongside the different statutory requirements for any European offices — each with their own calculation methods — from a single platform.

Integration with Slack and Teams keeps leave requests and approvals flowing smoothly, while detailed reporting gives you the data your payroll team needs for accurate holiday pay calculations every pay period.

At $10 per month (or $100 per year) for unlimited employees and policies, Leave Balance takes the guesswork out of leave tracking. Start your 14-day free trial — no credit card required — and build the foundation for holiday pay calculations you can trust.