Calculating payments for holidays and leave

Employees must be paid the right amount at the right time for holidays and leave. Annual holidays and worked public holidays are paid differently from other types of leave and holidays.

Payment for holidays and leave must be calculated each time the employee goes on holiday or leave as the rate of payment may change even from pay period to pay period.

Annual holidays are paid at whichever rate is the higher of:

  • the employee’s ordinary weekly pay at the beginning of the annual holiday, or
  • the employee’s average weekly earnings for the 12 months just before the end of the last pay period before the annual holiday.

Sick leave, bereavement leave, alternative holidays and unworked public holidays are paid at the rate of relevant daily pay, or may be paid at the rate of average daily pay in some situations.

Worked public holidays are paid at the rate of at least time and a half for the hours worked.

Some employment agreements have a salary rate for unspecified hours or patterns of work, or set wage rates for public holidays. Employment agreements can also include penal rates for particular days worked, for example, double-time for working on a Sunday. Holiday and leave provisions in employment agreements only apply if they are at least equal to what the employee would get under the Holidays Act 2003.

Calculating annual holiday payment rates

Payment for annual holidays is made at the start of the employee’s holiday and is at the rate of the greater of the employee’s ordinary weekly pay or average weekly earnings.

Paying via payroll system

How employers and payroll teams can check that their payroll system complies with minimum leave entitlements and payments in the Holidays Act 2003.

Pay for public holidays, sick and bereavement leave and alternative holidays

Payment is calculated using relevant daily pay or average daily pay.

Payment for leave and holidays in final pay

When you leave your employment, you may be entitled to get paid for annual holidays, alternative holidays and/or public holidays in your final pay

Relevant and average daily pay

Public holiday, bereavement and sick leave and alternative holiday payments are calculated using relevant daily pay or average daily pay (if applicable). Annual holidays are calculated differently.

Changes to tax legislation applying to employee share schemes (ESS)

Changes may affect gross earnings calculations for leave and holidays.

Holiday and leave entitlement and payment ‘must-knows’

What employers and employees should know about calculating holiday and leave entitlements and payments.

Gross earnings to calculate payment for holidays and leave

Gross earnings is used in a number of different situations to calculate payment for holidays and leave.

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