Making sure employees receive the correct holiday pay is an essential part of UK Working Time Regulations and UK law, so keeping your processes up to date with the latest changes is vital.
A Time and Attendance system makes adhering to the law much easier and streamlines payroll processes without needing to worry about whether staff are being paid correctly.
What is Average Holiday Pay?
Average Holiday Pay is how much an employee is paid for taking annual leave, and applies to almost all workers: full-time, part-time, contract and casual. Generally, the only workers exempt are those who are completely self-employed.
In the UK Average Holiday Pay must be the same amount as they would receive if they were still working, to ensure they do not suffer financially for taking holiday. Average Holiday Pay only applies to the 5.6 weeks' of legally entitled paid holiday per year; any additional holiday allocations by the employer do not need to be paid according to the Average Holiday Pay calculation.
Under changes to UK law, from 6 April 2026 all employers must keep six years' worth of records of annual leave and holiday pay from the date they were made. Failure to accurately pay Average Holiday Pay or to keep appropriate records can result in a fine or legal claims for unlawful pay deductions.
Crucially, however, Average Holiday Pay must be calculated using not only base pay, but all elements of what the worker would normally be paid.
How is Average Holiday Pay calculated?
Average Holiday Pay is calculated by using the average rate of earnings over the last 52 weeks. In the UK, the Employment Rights Act defines a week as beginning on a Sunday and ending on a Saturday.
For workers on fixed hours and pay, Average Holiday Pay is based on their standard pay, and is usually the same as their normal pay amount. However, for any employee who is also paid anything above their standard pay, this must also be taken into account when calculating their Average Holiday Pay.
The calculation for Average Holiday must include:
- Basic salary
- Guaranteed overtime
- Regular non-guaranteed overtime
- Commission
- Shift premiums and allowances
- Frequent performance bonuses
For workers who have variable hours and/or pay, Average Holiday Pay is calculated using their pay from the previous 52 working weeks of employment, up to 104 complete weeks if necessary.
If an employee has not been employed for 52 working weeks, the Average Holiday Pay should use the full length of time for which they have been employed.
Tensor's Time and Attendance System helps with Average Holiday Pay
Tensor's Time and Attendance system makes calculating Average Holiday Pay is simple. Through the Paybands setting, Tensor.NET can include any overtime or additional hours in Average Holiday Pay, with the number of previous weeks being used to calculate the average able to be changed as required.
By using absence codes, Tensor.Net can apply Average Holiday Pay to only the types of absence for which it is required, and proportionately calculate it for absences of any length, including half-days or timed absences. In keeping with the legal requirement, Average Holiday Pay is only calculated using the expected working days for the period; ie no rest days are included in the average.
Tensor.NET also only allows positive average adjustments, where the adjustment is added to the calculated hours based on the absence times, to ensure that both the original and average hours are available for reporting and payroll purposes.