Holiday pay rules for irregular-hours workers: is your process compliant?

As employees begin booking summer holidays, payroll and HR teams face a familiar challenge: balancing annual leave requests while ensuring holiday pay is calculated correctly and consistently.

Getting holiday pay wrong can be costly. It creates unnecessary administration, frustrates employees and can expose businesses to claims for underpayment. With recent changes to the rules for irregular-hours and part-year workers, now is also a good time for employers to review whether their current approach remains the right one.

Whatever method an employer adopts, consistency is critical. Holiday pay calculations should be clearly documented, applied consistently across the workforce and reviewed regularly to ensure they remain compliant with current legislation and employment contracts.

This is particularly important for businesses that employ seasonal staff, casual workers, zero-hours workers or employees whose hours vary significantly throughout the year.

Two approaches to holiday pay

For irregular-hours and part-year workers, employers have two options.

Option 1: Accrued holiday entitlement

Under rules introduced in April 2024, holiday entitlement can be accrued at 12.07% of hours worked during each pay period. When the employee takes holiday, they receive holiday pay based on the relevant calculation rules, often using average earnings over a 52-week reference period.

This approach ensures employees receive payment when they actually take annual leave and may feel more familiar to many employers.

Option 2: Rolled-up holiday pay

Employers can also use rolled-up holiday pay for irregular-hours and part-year workers whose leave year began on or after 1 April 2024. Under this approach, holiday pay is added to each payslip as a separate payment, calculated at a minimum of 12.07% of earnings for that pay period. It must be clearly itemised on the payslip.

The worker still takes annual leave, but they do not receive additional pay when they take that leave because the holiday pay has already been paid throughout the year.

Choosing the right approach for your workforce

Since the 2024 reforms, employers have greater flexibility when managing holiday entitlement and holiday pay for irregular-hours and part-year workers.

The accrual method may suit organisations that prefer employees to receive holiday pay when leave is actually taken and where existing payroll processes are already built around the 52-week reference period.

Rolled-up holiday pay may appeal to employers with large numbers of casual, seasonal or variable-hours workers because holiday pay is calculated and paid during each pay period, reducing some of the administrative burden associated with tracking future holiday payments.

The most appropriate route will depend on the composition of the workforce, the capabilities of the payroll system, the volume of holiday administration and the organisation’s wider HR policies. Employers should ensure whichever method they adopt is documented, communicated clearly and applied consistently.

Once a route is agreed, employers must stick to it for that holiday period.

With many businesses operating a January-to-December holiday year, the end of the summer provides an ideal opportunity to review current holiday pay arrangements, assess whether they remain appropriate for your workforce and, where necessary, plan any changes ahead of the next holiday year. The earlier those decisions are made, the easier it is to implement payroll, HR and contractual changes in a controlled way.

The specialist payroll team at Kreston Reeves can advise your business on the best option for calculating holiday pay. For more information contact our payroll team here.