How to calculate holiday pay

Tue 12th May 2015

The final court hearings have now taken place in the litigation about how to calculate holiday pay. The issue at stake was what to pay staff on holiday when part of their pay was made up of basic pay plus overtime, commission or regular bonuses. The practice of most employers has been to just pay the basic salary.

Following the different court hearings, which have been through Employment Tribunals, the Employment Appeal Tribunal and the European Court of Justice, the conclusion is that holiday pay must now reflect these additional items. This has an impact on most arrangements where the amount staff are paid varies. Employers will now have to look carefully at the way in which they pay staff whilst on holiday and will need to look at working arrangements to reflect and manage the changes.

Essentially, to calculate holiday pay, employers will have to look back over a period of time prior to the holiday to see what the average pay was. That is still not always going to be straightforward, because there are times (particularly with seasonal work or where bonus payments have been made) where pre-holiday pay does not really reflect what might have been earned if holiday had not been taken. For those employers with variable pay arrangements, some advice from an employment/HR professional would be appropriate.

For more information on recent changes to holiday pay contact Philip Sayers on 0800 328 3282 or email

Tue 12th May 2015

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