Rolled-Up Holiday Pay Guide for UK Employers

Rolled up holiday pay has become a key topic for UK employers following changes applying to leave years beginning on or after 1 April 2024. These reforms introduced a lawful route for using rolled up holiday pay for specific worker categories, reversing earlier restrictions that previously made the practice non-compliant.

This guide outlines how the system works, which workers are eligible, how to calculate payments, and what employers must do to remain compliant under current rules.

What Rolled-Up Holiday Pay Means for UK Employers

“Rolled-up holiday pay” is when an employer adds an amount on top of someone’s normal pay instead of paying separately when the holiday is taken.

For regular full-time or regular part-time workers, the statutory minimum arrangement remains 5.6 weeks’ paid holiday per year. Under current UK rules:

• The first 4 weeks must be paid at the worker’s normal rate of pay.

• The remaining 1.6 weeks may be paid at the basic rate of pay.

In contrast, for workers whose hours or working pattern are non-standard (for example casual, zero-hours or part-year workers) and who fall within the eligible categories, you may instead apply a single payment method (e.g., rolled-up holiday pay or the 52-week average) so that all of their holiday pay (the full 5.6 weeks) is paid at the normal rate of pay.

Rolled-Up Holiday Pay Law: What’s Changed for Employers

From 1 April 2024, new rules apply to a leave year starting on or after that date for certain workers.

Key regulations & guidance:

• The Working Time Regulations 1998 (WTR 1998) remain the foundation of holiday pay law in the UK.

• The Acas guidance emphasises that employers must not use rolled-up holiday pay for regular-hours workers.

• The Government’s Holiday Pay and Entitlement Reforms from 1 January 2024”document sets out that rolled-up holiday pay is permissible only for irregular-hours and part-year workers, and only for leave years beginning on or after 1 April 2024.

Definitions of relevant worker categories

• Irregular-hours worker: a worker whose number of paid hours each pay period is under the terms of their contract “wholly or mostly variable”.

• Part-year worker: a worker required to work only part of the year, and with periods of at least one week where they are not required to work and are not paid.

Important legal caveats:

• For regular-hours workers, using rolled-up holiday pay remains unlawful.

Holiday Entitlement for Irregular-Hours and Part-Year Workers

For eligible worker types, employers can calculate holiday entitlement using the 12.07% method.

This method calculates entitlement only, not pay.

Entitlement = 12.07% of hours worked in the pay period

Example

If a worker completes 100 hours, they accrue:

100 × 12.07% = 12.07 hours of leave.

How to Pay for Holiday Once Entitlement Is Calculated

After entitlement is established, employers must decide how holiday pay will be delivered.
Two approaches are available.

Option A: Rolled-Up Holiday Pay (RUHP)

Holiday pay is paid alongside normal wages.

Holiday pay amount = 12.07% of total earnings for that pay period, including bonuses, commission, variable pay, and qualifying overtime.

Example
Worker earns £1,000 total in the pay period.
RUHP = £1,000 × 12.07% = £120.70, itemised on the payslip.

Workers must still take their statutory leave, even though pay is delivered in advance.

Option B: Pay Holiday When Leave Is Taken

Employers may instead pay holiday when leave is actually taken.
Entitlement remains 12.07% of hours worked.
Holiday pay is then calculated using the 52-week average earnings for the worker.

Worked Example

Suppose Jemma is an irregular-hours worker. In a monthly pay period, she works 100 hours and earns total pay of £1,200

• Entitlement = 12.07% of hours worked (100 hours x 12.07%)

• Rolled-up holiday pay amount = £1,200 × 12.07% = £144.84.

• On payslip: “Basic pay £1,200 / Rolled-up holiday pay £144.84”.

• When Jemma takes leave: She takes 12.07 hours off but receives no separate holiday-pay payment at that time (because it was already paid in advance).

Important: The employer must still ensure she is able to take her statutory entitlement.

Rolled-Up Holiday Pay for Casual and Zero-Hours Workers

Irregular-hours workers

These are workers whose hours are “wholly or mostly variable” each pay period, e.g., casual, flexible-shift, zero-hours contracts. If you employ workers of this type, you may choose to use rolled-up holiday.

Part-year workers

Workers who are contracted to work only part of a year (e.g., term-time only, seasonal roles) and have defined breaks of at least a week where they are not required to work or paid. These also fall under the option for rolled-up holiday.

Who cannot receive it

If a worker is a regular-hours worker (i.e., their hours are fixed for each pay-period under contract or you are simply treating them like a standard employee), you cannot lawfully apply rolled-up holiday pay.

Considerations for Payroll

• If the worker is absent due to sickness or statutory leave (maternity, paternity, etc.), then holiday pay must still be accrued/payable based on the average from the relevant period.

• Must track hours worked accurately (for irregular-hours workers) so you can apply the 12.07% (or any contractually higher figure).

• Contracts may need updating if implementing rolled-up holiday pay, and employee/union consultation is necessary.

Tax, Payroll and HMRC Considerations

Taxable status

• Holiday pay (including rolled-up components) is treated as earnings for tax/National Insurance (NI) purposes.

• On payslips, holiday pay must be separate so the worker can see what portion of their pay relates to holiday entitlement (clear for transparency and audit).

Payroll actions

• Set your payroll system to treat the rolled-up holiday pay payment as part of “earnings” but flagged/labelled as holiday-pay component.

• For workers taking holiday, ensure that holiday pay does not get double-paid (i.e., you don’t pay the worker on top of the rolled-up amount when they take leave).

• Maintain records of how the holiday pay has been calculated and shown on payslips (for audit and potential tribunal risk).

HMRC/National Insurance

• Because this pay is earnings, standard PAYE and NI rules apply.

• No separate tax exemption applies to the holiday-pay portion.

• Keep clear separation in payroll reports: basic pay vs holiday-pay element.

Rolled-Up Holiday Pay vs Standard Holiday Pay

Standard method (regular-hours workers)

• Holiday is taken and paid at the time of taking leave.

• Doesn’t use the 12.07% method; instead uses the statutory 5.6 week entitlement and pay is based on “normal remuneration” for 4 weeks + “basic rate” for 1.6 weeks.

Rolled-Up method

• Used only for eligible irregular-hours or part-year workers.

• Payment is made alongside standard pay.

• Has administrative simplicity but requires transparency and ensures leave is still taken.

Key differences and risks

• With rolled up pay, there is a risk that workers may not take their actual leave (since payment is already included). Employers must encourage taking holiday.

• If not managed carefully, you might under-pay holiday pay (raising risk of claims) or pay double.

Common Employer Mistakes and Compliance Risks

• Applying rolled-up holiday pay to regular-hours workers (illegal under current rules).

• Failing to itemise the holiday-pay component separately on payslips.

• Not consulting or telling employees/union when contract changes are made.

• Not tracking hours for irregular-hours workers accurately, leading to incorrect calculation of the 12.07% uplift.

• Failing to ensure employees actually take their statutory leave (even if paid). This can lead to claims under working time regulations

• Overlooking absences (sick leave, maternity, parental) when calculating holiday pay accruals.

Consequences

If an employer mis-applies or fails to apply the right holiday pay (including rolled-up holiday pay), the risks include:

• Employment tribunal claims for unpaid or underpaid holiday entitlement and WTR.

• Unlawful deduction of wages claims (if pay is withheld or incorrect deductions made)

• Compensation for failing to allow or properly pay for statutory holiday

• Reputational damage: losing worker trust, media/industry scrutiny, increased liability costs.

• Back-dated liabilities: when wrongly applied methods are challenged for past periods, especially after recent reforms.

Take control of Rolled-up holiday pay management with BrightHR

Using this method could simplify payroll administration for flexible working frameworks, but only if you meet the eligibility criteria and comply with the regulatory requirements. The regulatory landscape for holiday pay is complex and evolving and staying on top of definitions, payslip transparency and record-keeping is essential.