Employment | Payroll

Understanding Holiday Pay: FAQs

Navigating holiday pay can be challenging for recruitment agencies managing PAYE temporary workers. We answer the frequently asked questions.


Navigating the complexities of holiday pay can be challenging for recruitment agencies managing PAYE temporary workers. Recent legal changes have introduced nuances that affect compliance and financial planning, you can find out more about the changes in our blog ‘Understanding Holiday Pay: Key Updates For Recruitment Agencies‘. To help clarify these updates, we’ve compiled a list of frequently asked questions that address the key points of confusion and provide detailed explanations to assist agencies in adapting to these changes efficiently.

What are the recent changes to holiday pay regulations?

Recently, the UK Government implemented substantial revisions to The Working Time Regulations 1998. These changes, effective from January 1, 2024, are relevant for holiday years that begin on or after April 1, 2024. The updates include:

  • A New Definition of a Week’s Pay: This revision specifies that holiday pay calculations must now include payments that are intrinsically linked to the performance of tasks, as well as those for professional status and regularly paid overtime, providing a more comprehensive basis for calculating holiday pay.
  • Updated Categories for Workers: The new rules better define irregular hours workers and part-year workers, enhancing the accuracy of holiday pay calculations and ensuring that these categories are clearly understood.
  • Rolled-up Holiday Pay: This adjustment allows holiday pay to be included as an additional amount in every payslip for irregular hours and part-year workers, which simplifies administrative processes for employers.
  • Modifying the Carryover of Unused Holidays: The amendments now allow workers to carry over up to 28 days of unused holiday, particularly in situations where the worker is unable to take their holiday due to sickness, maternity, or other family-related leave, or when an employer has not provided a reasonable opportunity to take the holiday. These carried-over holidays must be taken within 18 months from the end of the leave year in which they were accrued.

What is an irregular hours worker?

An irregular hours worker is someone who works hours fluctuate weekly, often without a predictable pattern. This can include those on zero-hours contracts or casual workers whose hours are dependent on the needs of the business rather than a fixed schedule.

What is a part-year worker?

A part-year worker is employed on a permanent basis but only works for certain parts of the year. This typically includes term-time workers such as school staff who only work during the academic year and not during school holidays.

What payments are included as part of the “normal pay”?

Normal pay includes basic salary and may also encompass other elements that are regularly received, such as overtime payments, commission payments, and bonuses that are linked to the performance of tasks under the worker’s contract. In addition, payments for professional or personal status relating to length of service , seniority or professional qualifications should be included.

Why is holiday pay calculated using 12.07%?

This percentage is derived from the fact that workers are entitled to 5.6 weeks (28 days) of leave per year, equating to 12.07% of the 46.4 working weeks annually (52 weeks minus 5.6 weeks of leave).

What happens if a worker is entitled to more than 5.6 weeks of leave?

For workers with more than the standard holiday entitlement, calculate their specific holiday percentage by dividing their total holiday entitlement by the remaining working weeks in the year, then multiplying by 100.

For example, for 6 weeks of leave: (6 ÷ 46 = 0.1304; 0.1304 x 100 = 13.04%). Their holiday pay would then be calculated as 13.04% of hours worked in each pay period.

What is “rolled-up” holiday pay?

Rolled-up holiday pay is an arrangement where holiday pay is included as an additional payment with each payslip instead of being paid out when the worker takes their leave.

Can you pay some temporary workers their holiday pay and accrue holiday pay for others?  

It is legally permissible to have different arrangements for different workers, such as some accruing holiday pay while others receive it as part of their regular wage (rolled-up holiday pay). However, it’s important to ensure that all arrangements are transparent, comply with the Working Time Regulations, and that the total holiday pay received is at least equivalent to what would be accrued under normal circumstances.

Which party decides whether holiday pay should be paid or accrued?

The employer (which is usually the recruitment agency) decides whether holiday pay should be paid upfront (rolled-up) or accrued to be paid when the holiday is taken. However, it must be clearly outlined in the employment contract and comply with local employment laws to ensure transparency and fairness.

Can you declare one rate to the temporary worker that includes the holiday pay?

No, the pay rate and the holiday pay must be declared separately to ensure transparency. Holiday pay should be clearly itemised on the temporary workers payslip to ensure workers are aware that part of their total pay includes holiday pay.

Can you implement these rules now?

The new rules take effect at the beginning of your leave year. Therefore if your leave year aligns with the calendar year then the new rules apply from 1 January 2025.

Will these rules apply with long-term assignments? Do they fall into the category of irregular hours?

Long-term assignments can fall into the category of irregular hours if the work pattern is not consistent year-round.

Do you have to pay out all accrued holiday pay at termination?

Yes, upon termination of employment, all accrued but unused holiday pay must be paid out to the worker. This is a statutory requirement under UK employment law and applies regardless of the reason for termination.

How do I ensure the holiday pay does not impact my profit margin?

To safeguard your profit margin while accounting for holiday pay, it is crucial to comprehensively understand all employment-related costs when negotiating rates with your clients. These costs include holiday pay, employer’s National Insurance contributions, employer’s pension contributions, and potentially the apprenticeship levy. To accurately assess these expenses and set appropriate rates with your clients, consider using our convenient margin calculator. This tool helps you include all relevant costs in your rate calculations, ensuring that your pricing strategy remains profitable.

Download the margin calculator here to get started.

Contact Us:

Contact Recruitment Accountants today for support with holiday pay or if you have any further questions.

You can email us at or call us at 0845 606 9632 to speak with one of our experts.

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