How Do I Calculate Holiday Pay

Holiday Pay Calculator

Use this calculator to estimate an employee's holiday pay based on their average weekly earnings over a specified reference period.

Understanding Holiday Pay Calculation

Holiday pay is a crucial aspect of employee compensation, ensuring that workers receive their regular earnings even when they are taking time off. The way holiday pay is calculated can vary significantly depending on local labor laws, employment contracts, and the employee's working patterns. This guide and calculator aim to simplify the process, focusing on a common method: calculating based on average weekly earnings.

What is Holiday Pay?

Holiday pay is the remuneration an employee receives for periods of annual leave. Its purpose is to ensure that an employee does not suffer a financial detriment by taking their entitled time off. This means that holiday pay should generally reflect what an employee would have earned had they been working.

How is Holiday Pay Calculated? The Average Weekly Earnings Method

A widely adopted method for calculating holiday pay, especially for workers with variable hours, overtime, or commission, is based on their average weekly earnings over a specific reference period. This approach ensures that all regular components of pay are included, not just basic salary.

Key Components:

1. Total Gross Earnings in Reference Period: This includes all forms of remuneration that are considered "normal" pay. This typically covers basic salary, guaranteed overtime, non-guaranteed but regularly worked overtime, commission, and certain bonuses. It generally excludes one-off payments or expenses.
2. Number of Weeks in Reference Period: This is the look-back period used to determine the average. Common reference periods include the last 12 weeks, 17 weeks, or even 52 weeks, depending on the jurisdiction and the regularity of the employee's pay. A longer reference period can provide a more accurate average for highly variable earnings.
3. Holiday Duration: This is the number of weeks or days of holiday for which you are calculating pay.

The Formula:

The basic calculation involves two steps:

1. Calculate Average Weekly Earnings:
   Average Weekly Earnings = Total Gross Earnings in Reference Period / Number of Weeks in Reference Period
2. Calculate Total Holiday Pay:
   If calculating by weeks: Total Holiday Pay = Average Weekly Earnings × Number of Holiday Weeks
   If calculating by days (assuming a 5-day work week): Total Holiday Pay = (Average Weekly Earnings / 5) × Number of Holiday Days

Using the Calculator

Our Holiday Pay Calculator simplifies this process:

• Total Gross Earnings in Reference Period: Enter the total amount the employee earned during your chosen reference period. Ensure this includes all relevant pay components (e.g., basic pay, regular overtime, commission).
• Number of Weeks in Reference Period: Input the number of weeks over which those earnings were accumulated (e.g., 12, 17, or 52 weeks).
• Calculate Holiday Pay For: Select whether you want to calculate pay for a number of "Weeks" or "Days".
• Number of Holiday Weeks/Days to Pay: Enter the specific number of weeks or days of holiday you are calculating pay for.

Click "Calculate Holiday Pay" to see the estimated amount.

Example Calculation:

Let's say an employee earned £5,200 over the last 12 weeks. They are taking 1 week of holiday.

1. Average Weekly Earnings: £5,200 / 12 weeks = £433.33 per week
2. Holiday Pay for 1 Week: £433.33 × 1 week = £433.33

If the same employee took 3 days of holiday:

1. Average Weekly Earnings: £433.33 per week
2. Average Daily Earnings: £433.33 / 5 days = £86.67 per day
3. Holiday Pay for 3 Days: £86.67 × 3 days = £260.01

Important Considerations:

• Local Laws: Holiday pay regulations vary significantly by country and region. Always consult local labor laws (e.g., ACAS guidance in the UK, Fair Labor Standards Act in the US) or legal counsel to ensure compliance.
• Contractual Agreements: Employment contracts may specify different methods or rates for holiday pay that exceed statutory minimums.
• Overtime and Commission: The inclusion of overtime, commission, and bonuses in holiday pay calculations is a common area of complexity. Generally, if these payments are regular and intrinsic to the work performed, they should be included in the average earnings calculation.
• Reference Period Changes: Some jurisdictions have updated their reference periods (e.g., from 12 weeks to 52 weeks) to better reflect average earnings for variable-pay workers.

This calculator provides a useful estimate, but it should not replace professional advice or a thorough understanding of your specific legal obligations.