TL;DR

Holiday pay in the UK is the statutory entitlement for workers to receive their normal remuneration during annual leave, governed primarily by the Working Time Regulations 1998 and a series of Employment Tribunal and Supreme Court rulings. For agency workers and those with variable pay, the calculation is more complex than it first appears. Getting it wrong exposes recruiters, agencies, and hirers to Employment Tribunal claims and retrospective underpayment liability.

How UK Holiday Pay Is Calculated

Every worker in the UK is entitled to at least 5.6 weeks of paid annual leave per year: 28 days for a full-time [employee](/glossary/employee), pro-rated for part-time workers. The 28 days includes public bank holidays, though employers can choose whether those count toward the entitlement or sit on top of it. The first 4 weeks derive from the EU Working Time Directive (now retained in UK law post-Brexit); the additional 1.6 weeks is a UK statutory top-up.

The calculation of what "paid" means became genuinely contested through litigation. The Supreme Court's 2022 ruling in Harpur Trust v Brazel settled the part-year worker debate: workers employed on permanent contracts but only working for part of the year (supply teachers, seasonal agency workers) must have holiday pay calculated using the 52-week average method, not a simple pro-rata formula. That ruling meant that some part-year workers became entitled to more holiday pay, as a percentage of their annual earnings, than year-round workers.

For workers with variable pay (overtime, commission, shift premiums) the calculation uses a 52-week reference period. Weeks where no pay was earned do not count; instead, you look back further until you have 52 paid weeks, up to a maximum of 104 weeks. This matters for agency workers on irregular assignments who might have gaps between placements. A worker on a 12-week placement preceded by six weeks without work has a reference period that extends back into their previous placement.

Why It Matters for Recruitment

Staffing agencies carry direct liability for holiday pay on agency workers, and most [agency worker](/glossary/agency-worker) disputes about holiday pay end up naming the agency, not the hirer. Under the Agency Workers Regulations 2010, agency workers gain entitlement to pay parity after 12 weeks, but holiday pay obligations begin from day one. Agencies that use rolled-up holiday pay (where a 12.07% uplift is added to each invoice in lieu of paid leave) have faced Tribunal challenges, because the 2022 Harpur Trust ruling created complications for how that model applies to certain worker types.

From a recruiter's perspective, the compliance risk is compounded by the volume of agency workers processed at scale. An agency placing 300 temporary workers across 40 clients has 300 individual reference period calculations to manage. Errors compound: underpaying holiday pay for one worker by £200 across a six-month assignment becomes £60,000 across a large workforce. Employment Tribunals can award up to two years of unlawful deduction from wages claims, and there is no cap.

Recruiters also need to track holiday accrual in real time, not at the point of payment. Workers accrue leave as they work. If a placement ends unexpectedly and the worker has untaken accrued leave, the agency must pay it out as a termination payment. Failing to do so creates an immediate Tribunal exposure.

In Practice

A mid-size staffing agency places 120 warehouse operatives with a logistics company. The workers are on zero-hours contracts, with hours ranging from 20 to 48 per week depending on demand. Overtime is common during Q4.

The agency's payroll system calculates holiday pay using a flat 12.07% uplift applied to basic hours only, ignoring overtime. In March 2024, a worker raises a claim through ACAS: their holiday pay for a two-week August holiday excluded six months of regular overtime. The 52-week average calculation shows they were underpaid by £340 per week of leave. The Tribunal finds in their favour.

The agency audits the remaining 119 workers. Average underpayment: £280 per leave week, per worker. With an average of 3.5 weeks of leave taken per year, the total retrospective liability is approximately £117,600, plus Tribunal costs and ACAS early conciliation fees.

The fix: payroll software reconfigured to include all regular overtime in the 52-week average. New payslip line item shows the calculation reference period. Monthly reconciliation checks flag any worker whose variable pay has changed by more than 20% against the prior period average.

Key Facts