In the UK, holiday pay is a legal entitlement ensuring that workers are paid while taking statutory annual leave. Most full-time employees are entitled to 28 days of paid holiday per year, which can include bank holidays.
For part-time or irregular workers, such as those on zero-hours contracts or casual agreements, holiday pay is calculated based on the average weekly earnings over the previous 52 weeks worked.
Employers must ensure that holiday pay reflects regular overtime, commissions, and other earnings, not just basic pay
Calculating holiday pay for casual workers in the UK can be complex due to the irregularity of hours, inconsistent schedules, and varied employment contracts.
Yet, under UK employment law, all workers—including casual, zero-hours, and temporary staff—are legally entitled to paid annual leave.
Ensuring accurate holiday pay not only helps businesses stay compliant with the law but also supports fair treatment of the workforce.
Failing to provide correct holiday pay can lead to legal claims, making compliance essential for all employers.
In this blog post, we’ll provide a comprehensive guide on how to calculate holiday pay for casual workers. We’ll cover the legal basis, calculation methods, recent updates, practical examples, and employer best practices for 2025 and beyond.
Understanding Holiday Entitlement for Casual Workers
Casual workers are typically individuals who do not have fixed hours or patterns of work. They may be on zero-hours contracts, bank contracts, or short-term contracts, and are usually paid only for the hours they work.
Despite the irregularity of their work, casual workers are still entitled to:
- A minimum of 5.6 weeks’ paid holiday per year (pro-rated if they work part of the year).
- Holiday pay, based on their average earnings over a specified reference period.
This entitlement is backed by the Working Time Regulations 1998 and reinforced by case law and guidance from HMRC and Acas.
What Has Changed? (2024/2025 Legal Updates)
As of 1 January 2024, the UK government clarified new rules for calculating holiday pay and entitlement for irregular-hour and part-year workers. The key updates include:
- Rolled-up holiday pay is permitted again (with conditions), allowing employers to include an extra amount in each payslip instead of paying holiday separately when time is taken off.
- A fixed 12.07% method is allowed for calculating holiday pay for irregular-hour and part-year workers, as long as it is clearly itemised on the payslip.
- A 52-week reference period (going back up to 104 weeks) is to be used for calculating average weekly pay if the employee takes time off for holiday and is paid at the time of leave.
Understanding both the old and new rules is critical to staying compliant and avoiding underpayment claims.
How Much Holidays Are Casual Workers Entitled To?
All workers are entitled to 5.6 weeks of paid annual leave, which includes:
- 4 weeks required under EU law (Working Time Directive)
- 1.6 weeks under UK domestic law (bank/public holidays)
For workers with irregular hours, this entitlement is pro-rated based on the hours or days worked. The easiest method is to calculate 12.07% of the hours worked:
12.07% = 5.6 weeks ÷ 46.4 working weeks (52 – 5.6)
This formula is widely accepted for casual workers—although it should only be used for calculating entitlement, not the actual payment when holiday is taken.
Holiday Pay Calculation Methods
Depending on how and when you pay for holidays, there are two main methods for calculating holiday pay for casual workers:
1. The 12.07% Method (Rolled-Up Holiday Pay)
If you opt to include holiday pay in each payslip, use this method:
Holiday pay = 12.07% of total gross pay per period
Must be clearly stated on payslips as a separate item (e.g., “Holiday Pay”)
Cannot be used if the worker is given time off and paid during that time
Example:
If a casual worker earns £500 in one week, their holiday pay would be:
£500 × 12.07% = £60.35
Their payslip must show:
Basic Pay: £500
Holiday Pay: £60.35
Total Gross Pay: £560.35
This method is popular for casual workers who work intermittently or on short assignments and prefer to receive holiday pay regularly rather than accrue it.
2. The Average Weekly Earnings Method (When Time Off Is Taken)
If a casual worker takes actual holiday leave, you must calculate their average pay using the 52-week reference period.
How it works:
- Look at the last 52 weeks in which the worker received pay.
- Exclude any weeks with no pay (you can go back up to 104 weeks to find 52 paid weeks).
- Calculate the average weekly earnings over those 52 paid weeks.
- Pay this average for each week of holiday the worker takes.
Example:
If a worker earned £15,600 over the last 52 paid weeks:
£15,600 ÷ 52 = £300 per week of holiday taken
If they take 1 week off, you pay them £300 for that holiday.
This method is especially relevant for workers taking extended leave or those on long-term, irregular contracts.
How to Handle Partial Weeks?
Sometimes, workers take just 1 or 2 days of holiday. In such cases:
- Divide their average weekly pay by the number of working days in a week.
- Multiply by the number of days taken.
Example:
If average weekly pay = £300
Usual work week = 5 days
Holiday taken = 2 days
(£300 ÷ 5) × 2 = £120 holiday pay
Best Practices for Employers
- Keep Clear Records
- Track hours worked, pay received, and holiday taken
- Use time tracking software or timesheets for accuracy
- Record when rolled-up holiday pay is applied
- Include Holiday Policies in Contracts
- State whether holiday pay is rolled-up or paid at the time of leave
- Outline entitlement accrual and pay calculation clearly
- Comply with Payslip Requirements
- If using rolled-up pay, itemise it separately
- Avoid combining it with base pay to prevent legal issues
- Use Payroll Software
Automated payroll systems help calculate 12.07% correctly, apply statutory rules, and ensure real-time compliance.
- Review Regularly
- Conduct regular audits of holiday pay calculations
- Stay informed about updates in employment law
- Seek advice from payroll professionals or legal advisors
Common Mistakes to Avoid When Calculating Holiday Pay
- Assuming casual workers aren’t entitled to holiday pay
All workers in the UK are legally entitled to paid leave—regardless of how many hours they work. - Applying the 12.07% formula during actual time off
The 12.07% method is intended for rolled-up holiday pay. When workers take actual time off, you must use the average pay calculation method. - Failing to show holiday pay separately on payslips
Especially if you’re using the rolled-up method, HMRC requires that holiday pay is clearly itemised on payslips. - Using outdated rules
Make sure you’re following the latest regulations. As of 2024, the 12.07% method is permitted only for part-year workers under specific conditions.
FAQs
Q: Can we choose whether to use rolled-up holiday pay?
Yes, from January 2024, it’s permitted again for irregular and part-year workers—but only if clearly shown on payslips.
Q: Do bank holidays count for casual workers?
Casual workers are entitled to 5.6 weeks total annual leave, including bank holidays. Whether they get bank holidays off depends on their contract.
Q: What if a worker didn’t work for 52 weeks?
Use the actual number of weeks they were paid, going back up to 104 weeks to find 52 paid ones.
Conclusion
Calculating holiday pay for casual workers in the UK involves understanding employment status, working patterns, and legal entitlements.
With the 2024 legal updates, employers now have clearer guidelines—especially regarding rolled-up holiday pay and the 12.07% entitlement method.
By using accurate tracking systems, following best practices, and ensuring clear communication with casual staff, businesses can ensure fair treatment, legal compliance, and operational efficiency.
For casual workers, understanding your rights ensures that you’re fairly compensated for your time and commitment, even if your hours vary.
Disclaimer:
This blog is for general informational purposes only and does not constitute legal advice. Employers should consult a qualified HR or employment law specialist to ensure full compliance with current UK regulations.
