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Calculating payments for leave and holidays

It is very important to calculate the right rate of pay for leave and holidays. Annual holidays are calculated differently from public and alternative holidays, sick and bereavement leave.

Holidays and leave payment rates must be calculated each time the employee goes on leave or holiday as the appropriate payment rate may change even from pay period to pay period.

Annual holidays are paid at whichever rate is the higher of:

  • the employee’s ordinary weekly pay at the beginning of the annual holiday, or
  • the employee’s average weekly earnings for the 12 months just before the end of the last pay period before the annual holiday.

Sick leave, bereavement leave, alternative holidays and public holidays are paid at the rate of either average daily pay or relevant daily pay.

Some employment agreements spell out a salary rate for unspecified hours or patterns of work, or set wage rates for public holidays. Employment agreements can also include penal rates for particular days worked, for example, double-time for working on a Sunday. These must provide for the amount to be at least equal to what the employee would get under the Holidays Act 2003.

Calculating annual holiday payments

Payment for annual holidays (annual leave) is made at the start of the employee’s holiday and paid at a rate which is the greater of the employee’s ordinary weekly pay or average weekly earnings.

Paying via payroll system

How employers and payroll teams can check that their payroll system complies with minimum leave entitlements and payments in the Holidays Act 2003.

Calculating payments for working on a public holiday

How to calculate payments for employees who work on public holidays.

Calculating sick and bereavement leave payments

Payment for alternative holidays, sick and bereavement leave and public holidays (unworked) are calculated using relevant daily pay or average daily pay.

Payment for leave and holidays in final pay

When you leave your employment, any annual and alternative holidays that haven’t been taken by you are paid in your last pay.

Relevant and average daily pay

Public holidays, bereavement and sick leave payments are calculated using relevant daily pay or average daily pay. Annual holidays are calculated in a different way.

Time and a half and penal rates

Employees working on a public holiday get at least one and a half times (time and a half) their relevant daily pay or average daily pay for the hours worked.

Otherwise working day

To work out an employee’s rights to public holidays, alternative holidays, sick leave and bereavement leave, you need to know whether the employee would have otherwise worked that day.

Changes to tax legislation applying to employee share schemes (ESS)

Changes may affect gross earnings calculations for leave and holidays.

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