Overtime Holiday Pay Calculations: How to Ensure You're Getting Paid Correctly

Overtime holiday pay calculations explained—learn how to ensure you're getting paid correctly under UK law.

Overtime Holiday Pay Calculations

Comprehensive Outline

Section Number Heading Description
1 Introduction Overview of holiday pay and why overtime matters
2 What Is Holiday Pay? Definitions, statutory vs contractual, and legal obligations
3 Understanding Overtime Types of overtime: guaranteed, non-guaranteed, and voluntary
4 Why Overtime Should Be Included in Holiday Pay Legal precedents and the logic behind fair pay
5 Holiday Pay and UK Employment Law Key legislation and how it applies to holiday pay calculations
6 What Counts as ‘Normal Remuneration’? Components of pay that must be included in holiday pay
7 Calculating Holiday Pay with Overtime Step-by-step guide with examples and formulas
8 Fixed Hours vs Variable Hours: Key Differences Impacts on how holiday pay is calculated
9 Rolled-Up Holiday Pay: Legal or Not? Explanation of rolled-up pay and why it's controversial
10 Reference Period Explained What is a week’s pay, and why does the 52-week reference period matter
11 Holiday Pay for Part-Time and Zero-Hours Contracts Special considerations for non-standard workers
12 Common Mistakes in Holiday Pay Calculations Poor record keeping, incorrect averages, and misclassified overtime
13 Real-Life Case Studies Insights from Bear Scotland Ltd and British Gas Trading
14 What to Do If You’re Not Paid Correctly Steps to take: raise with employer, ACAS, and tribunals
15 Conclusion Summary, employee rights, and final tips
16 Frequently Asked Questions Six detailed FAQS before the conclusion

Introduction

Overtime holiday pay is one of the most commonly misunderstood areas of employment law in the UK. For employees who regularly work overtime, it’s crucial to know whether those extra hours are reflected in their holiday pay. Failure to receive the correct pay could mean you're missing out on hundreds—if not thousands—of pounds over time.


In this article, we'll break down overtime holiday pay calculations and show you how to ensure you're getting paid correctly. From legal requirements to employer responsibilities, we've got you covered.

Overtime Holiday Pay Calculations

What Is Holiday Pay?

Under UK employment law, all workers are entitled to a statutory minimum of 28 days’ paid holiday per year, which may include bank holidays. This is often referred to as statutory annual leave and is calculated based on the number of days or hours you work.


Key Terms:

  • Holiday Entitlement – The amount of annual leave you're entitled to.
  • Paid Holiday – Time off work that’s paid as if the employee were working.
  • Holiday Year – The 12-month period used by your employer to calculate leave.

Learn more about yourstatutory leave entitlements.


Understanding Overtime

Before diving into calculations, it’s important to understand the different kinds of overtime:

Type of Overtime Description
Guaranteed Overtime Must be offered and worked as per the contract
Non-Guaranteed Not contractually promised, but must be worked when offered
Voluntary Overtime Chosen by the employee and not contractually required

Employers often make the mistake of excluding voluntary and non-guaranteed overtime from holiday pay, but recent case law says otherwise.


Why Overtime Should Be Included in Holiday Pay

The rationale is simple: holiday pay should reflect normal pay. If overtime forms a regular part of your income, it must be included in your holiday pay.


The Employment Appeal Tribunal ruled in cases like Bear Scotland Ltd v Fulton that workers should not suffer financially for taking time off. This includes payments such as:


  • Commission
  • Bonuses
  • Regular voluntary overtime


Ignoring these elements can lead to employment tribunal claims, reputational damage, and financial penalties for employers.


Holiday Pay and UK Employment Law

Key legislation includes:

  • Working Time Regulations 1998
  • Employment Rights Act 1996
  • European Court of Justice rulings


The law requires that employees receive their normal remuneration during statutory holiday periods. Employers must therefore consider more than just basic pay.


What Counts as ‘Normal Remuneration’?

"Normal remuneration" is not just your basic salary. It can include:

  • Overtime payments (if regular)
  • Commission payments
  • Shift allowances
  • Performance bonuses

This means that average weekly pay, not just fixed hours, is key to correct calculations.


Calculating Holiday Pay with Overtime

Step-by-Step Guide:

  1. Calculate total earnings over the last 52 weeks.
  2. Exclude weeks not worked or unpaid.
  3. Divide the total pay by the number of working weeks.
  4. Result = Average weekly pay to be used for holiday pay.


For example:

If you earned £600 each week for 40 weeks and £400 for 12 weeks:
Total = £28,800. Average = £28,800 ÷ 52 = £553.85/week

This method ensures your holiday pay reflects actual earnings.


Fixed Hours vs Variable Hours: Key Differences



Criteria Fixed Hours Variable Hours
Hours Worked Same each week Changes week-to-week
Pay Calculations Based on contracted pay Based on the average over 52 weeks
Holiday Pay Impact More predictable Needs accurate record-keeping

Employers must adapt their calculation method based on the employee’s working pattern.


Rolled-Up Holiday Pay: Legal or Not?

Rolled-up holiday pay is when holiday pay is included in regular wages, instead of being paid during time off.


Is it legal?

No, according to the European Court of Justice, this practice discourages workers from taking leave. Employers must provide paid time off, not just pay more per hour.


Reference Period Explained

As of April 2020, the holiday pay reference period is 52 weeks. If an employee hasn’t worked 52 weeks, employers should use as many full weeks as are available (up to 104 weeks).


This method helps ensure holiday pay matches the employee's normal pay.


Holiday Pay for Part-Time and Zero-Hours Contracts

Part-time employees and those on zero-hours contracts still have a right to fair holiday pay.


For example, if you work different hours each week, your employer must use the 52-week reference period to calculate an accurate weekly average.


Even irregular hours do not exempt employers from paying fairly.


Common Mistakes in Holiday Pay Calculations

  • Excluding overtime hours
  • Using outdated reference periods
  • Not tracking variable pay properly
  • Misclassifying voluntary overtime


These mistakes often stem from poor record-keeping or outdated payroll systems.


Real-Life Case Studies

Bear Scotland Ltd v Fulton

Landmark case that established that non-guaranteed overtime must be included in holiday pay.


British Gas Trading Ltd v Lock

Held that commission payments also need to be part of holiday pay calculations.

These cases reshaped how UK employers calculate and manage holiday entitlement and pay.


What to Do If You’re Not Paid Correctly

  1. Raise the issue internally with HR or payroll.
  2. Use a grievance procedure if unresolved.
  3. Contact ACAS for mediation.
  4. File an employment tribunal claim if necessary.


Always keep a record of your hours and pay slips to support your case.


Conclusion

Understanding your rights around overtime holiday pay is crucial. Employers have a legal obligation to ensure that your holiday pay reflects your normal remuneration, including overtime, bonuses, and commissions. With the right knowledge, you can ensure your pay is accurate and fair.


If you suspect your holiday pay has been miscalculated, don’t hesitate to contact 10.CA. Review your employment contract, check your payslips, and know that the law is on your side.


Frequently Asked Questions

  • Is overtime legally required to be included in holiday pay?

    Yes, if it’s part of your normal remuneration, including regular voluntary overtime.

  • Can I get backdated holiday pay for past overtime?

    Yes, but claims must typically be made within 3 months of the last underpayment.

  • Does rolled-up holiday pay count?

    Not legally. Employers must pay holiday pay separately during actual time off.

  • How do I know if my holiday pay is correct?

    Check your average weekly earnings and compare them with your holiday pay.

  • What if I work irregular hours?

    Your employer must calculate holiday pay based on your 52-week average earnings.

  • Are bank holidays included in holiday pay?

    Only if your contract or employer includes them in your statutory holiday entitlement.

Company tax returns and accounts have gone digital

By Charlie Flockhart • April 21, 2026
HMRC and Companies House have confirmed that from 1 April, all businesses must use compliant, commercial software to file their company’s tax returns. As of 31 March, the free joint online service, commonly known as the CATO portal, from these two Government bodies has been removed and you must now use software to file company tax returns to HMRC. For the time being, you will still be able to file annual accounts at Companies House using third-party software, WebFiling services or paper filing. The decision has been made to end this service as it is “outdated and no longer aligns with modern digital standards”, according to Companies House. This change is in line with the introduction of the Economic Crime and Corporate Transparency Act, which implemented “enhanced corporation tax requirements and changes to UK company law.” It also follows on from a major IT security breach at Companies House, identified in March 2026, that exposed the WebFiling system and allowed some users to potentially access and amend the details of other companies. Although the breach has now been resolved and security strengthened, it has raised concerns about the reliability of GOV.UK One Login service.  Can you still amend previous returns using the free service? HMRC and Companies House have confirmed that now that the free filing service has closed, company directors will have to use commercial tax software if they need to make changes to a previously submitted Corporation Tax return or refile a rejected return. From now onwards, any previously filed financial information will no longer be available in the system, as it has not been retained and will need to be entered again. HMRC has said that, for amendments, it will also be acceptable to send a paper return to the Corporation Tax Services office. If you have previously filed financial accounts with Companies House and you want to make changes or corrections, this will also need to be done via commercial software or by sending paper accounts to Companies House via post. Are there any exceptions to this new rule? Companies can file a paper Corporation Tax return only in limited circumstances, such as if they wish to submit it in Welsh or can demonstrate a valid, reasonable excuse to HMRC. Otherwise, returns must be filed online using commercial software. If you are affected by this change and need help choosing and utilising commercial software to complete your Corporation Tax return, please speak to our team.

Capital allowances - New rules for a new tax year

By Charlie Flockhart • April 21, 2026
Capital allowances continue to provide an effective method for businesses to reduce their tax bills, by providing incentives for investment in eligible expenditure – typically plant and machinery. Historically, these reliefs have been subject to change and the 2026/27 tax year is no different, as the Government moves to alter two key reliefs – Writing Down Allowance (WDA) and a new First-Year Allowance (FYA).  Reduction of the Writing Down Allowance The WDA will be reduced from 18 per cent to 14 per cent on the main pool of qualifying plant and machinery assets. This change has been introduced on two different dates, starting with companies subject to Corporation Tax on 1 April and followed shortly thereafter by those subject to Income Tax, such as sole traders and partnerships, from 6 April. Businesses with large brought forward main pool expenditures are expected to lose the most from the reduction in the main rate of WDA. In the long-term, the change may also reduce incentives for investment in second-hand assets and cars, which benefited under the previous rules. The new First-Year Allowance To offset some of the impact of the reduction in WDA, a new 40 per cent FYA on main rate expenditure, primarily still covering plant and machinery, will now be available. This new FYA is intended to encourage investment in areas where other FYAs don’t allow, in particular, assets bought by unincorporated businesses and leases. Sole traders and partnerships will, for the first time, be able to get additional support at the point of investment, which means that more businesses will be able to reduce their tax bill in the same year as their investment. This is expected to give a quick cashflow boost to those affected and provide additional support for future investments. However, it is important to note that this FYA does not support investment in second-hand assets, cars or leased assets in other countries. Finally, the Government has also confirmed that small business owners will continue to benefit from tax relief on electric vehicles, as the 100 per cent FYA for zero-emission vehicles and charge points has been extended until 31 March 2027 for Corporation Tax and 5 April 2027 for Income Tax. This gives businesses greater certainty when planning ahead, while also providing a strong financial incentive to invest by reducing tax bills upfront. Want to make more of capital allowances? If you think you may be eligible for capital allowances, either due to the changes outlined in this article or more generally, then it is important that you claim the tax relief available to you. If you would like help reviewing the current capital allowances that your business can claim, please get in touch.

Government abolishes work-from-home relief

By Charlie Flockhart • April 21, 2026
Directors and employees claiming work-from-home tax relief will no longer be able to claim it from the start of the new tax year – 6 April 2026. Why is this relief being taken away? The Chancellor announced the removal of the work-from-home relief as part of her latest Autumn Budget. The main reasoning given for the abolition is that it will support the nation’s deficit reduction. HMRC has also said that it no longer believes it is fit for purpose or easy to police. Who could claim work-from-home relief? Work-from-home relief has been utilised by homeworkers since the early 2000s, helping them offset some of the costs of heating, lighting, broadband and other home-office expenses required to complete their jobs. The relief allowed employees and directors to claim a flat rate of £6 per week or a deduction for actual costs. However, those who do not claim the flat fee were required to provide evidence of the exact costs, such as an invoice or bill. Eligibility for the relief only applied to individuals who had no other choice but to work from home. For instance, where the business did not have an office or the daily commute was not feasible. Individuals who simply preferred to work from home did not qualify. Is there any relief still available for home workers? The only remaining tax-free support will be reimbursements made directly by employers. This applies only where the payments relate to demonstrated additional household costs and where the costs are incurred wholly, exclusively and necessarily for employment duties. For anyone still claiming work-from-home relief, it is worth reviewing your position now to understand how this abolishment will impact your take-home pay.