How to calculate rolled-up holiday pay under new 2024 legislation

If you employ staff on irregular hours or a seasonal basis, you should familiarise yourself with the ‘Rolled-up’ holiday concept. This is when an employee is paid additional money each month to cover their holiday pay. This is instead of them physically taking an annual leave day and receiving their holiday pay when they go on an annual leave, (like a full-timer or regular hours worker).

Rolled-up holiday pay has historically been a controversial practice

Rolled-up holiday pay is a very convenient and pragmatic way of administering holidays for irregular-hours workers who don’t have predictable working days on which to schedule annual holidays.

However, well-being advocates argue that this rolled-up holiday pay can lead to employee burnout as employees may be tempted to boost their salary by simply not taking their accrued holiday.

Despite this, irregular-hours employees have historically appreciated the option to do this, and potentially more so in the cost-of-living crisis environment. Subsequently, even legal commentators concede anecdotally that the practice of paying out rolled-up holiday pay to irregular and seasonal workers has been widespread for years, even though the government has appeared to frown on this practice.

The government now recognises the value of rolled-up holiday pay

Because of the complications around calculating annual leave for irregular-hours workers versus regular-hours workers, the government has now chosen to support this practice of rolled-up holiday pay.

From 1st April 2024, the new legislation states that rolled-up holiday pay can now be used to distribute holiday allowance to irregular hours and seasonal workers. Experts suggest that these changes are going to be met with widespread approval from workers and employers.

We, therefore, thought it timely to set out how to calculate rolled-up holiday pay under this new legislation.

4 rules around paying rolled-up holiday pay

ACAS outlines four specific measures that must be applied to ensure that holiday pay is distributed in line with the new employment legislation:

1. Rolled-up holiday pay accrues, (and should therefore be calculated), at a rate of 12.07% of actual hours worked in a pay period. This pay period is typically 1 calendar month in the UK but can sometimes be as short as a week.
2. It should be paid at the same time that the worker is paid for actual work done in that pay period.
3. It should be shown as a separate payment on the worker’s pay slip.
4. The employer must pay the worker holiday pay in the pay periods when they’re off sick or on statutory leave, (e.g. maternity, paternity, or carers leave).

Example of rolled-up holiday pay in practice

You have a casual worker called Alex, who you want to pay rolled-up holiday pay. In May Alex earns £1,000. Based on the 12.07% accrual method, this casual worker should receive £120.70 rolled-up holiday pay on top of the £1,000 they earned in May. This should be listed as a separate item on their pay slip.

Let’s say in June that Alex then works for 3 weeks, takes 1 week’s holiday, and subsequently earns £750. They should receive £90.53 rolled-up holiday pay in addition to the £750 they earned in June. They will not receive any pay for their 1-week holiday like a full-time or regular hours employee would.

Contractually enhanced holiday

The 12.07% figure is based on the worker’s statutory leave allowance of 5.6 weeks a year. This reduces a worker’s total working weeks in a year to 46.4 (52 weeks in a year minus 5.6 weeks of leave). 12.07% of 46.4 is 5.6.

However, some organisations may offer their regular worker enhanced holiday allowances, meaning they have more than the minimum holiday entitlement. This must be reflected in their rolled-up holiday pay.

To find the relevant multiplier percentage for a worker with an enhanced holiday allowance you would do the following calculation.

Let’s assume the worker is entitled to 30 days, or 6 weeks, leave. The calculation would be as follows:

6 ÷ 46 = 0.1304

0.1304 x 100 = 13.04

When calculating this worker’s rolled-up Holiday pay, HR Managers should use this 13.04% figure which reflects the contractual enhancement of holiday allowance, (and not the statutory 12.07% figure).

Paying holiday pay when on statutory leave

As we mentioned earlier, HR Managers should note that rolled-up holiday pay should still be paid when the employee is on statutory leave. The employee should be paid the average amount of holiday pay they received in the 52 weeks before the sick leave or statutory leave started.

For example, if your employee is paid weekly and takes two months off sick and the average holiday pay over the previous 52 weeks was £52 then you must pay them £52 each week they are off sick.

Further information on this topic can be found on the ACAS and or the Government website.