Pay - an overview of obligations

Paying workers holiday pay

As an employer you are required to allow each worker to take paid annual leave equal to four weeks in each year. This holiday should be taken by the worker and cannot be substituted by pay in lieu even if the worker agrees - except for accrued untaken leave at the time the employment ends.

The law says four weeks but this is translated by most employers into the equivalent number of days, eg 20 days for those who work five days a week or 24 for those who work six days a week. This allows workers to take odd days rather than having to take whole weeks as holiday.

This entitlement, which should be clearly set out in the worker's contract, does not have to be in addition to bank holidays although these are usually allowed in addition to other holiday and are also generally given as paid leave. This depends mostly on the commercial sector you are in, eg almost all offices close on bank holidays but most large shops are open.

Rates of pay
The rate of holiday pay is generally the normal rate for the worker. So for salaried workers, their annual salary is divided into 12 equal payments and when they take holiday it has no effect on their pay slip.

Only where your workers have varying pay rates, such as piece work, is there the need to work out a special payment. In those cases, the holiday pay will be equal to the average rate over the 12 weeks before the holiday.

This only applies to the statutory holiday periods. So if you offer extra leave over and above the four weeks (including bank holidays), then the rate of pay for these can be whatever is agreed with your employees.

In the real world, holiday pay, like normal pay, is dictated by market rates. If you offer less annual leave and lower rates of pay than your competitors, you are unlikely to get the best workers.

Subjects covered in this guide

• Introduction
• Issuing pay statements
• Statutory Maternity, Paternity and Adoption Pay
• Statutory Sick Pay
• Guarantee pay
• Complying with the National Minimum Wage
• Rates and calculation of the National Minimum Wage
• Paying workers holiday pay
• Making deductions
• Calculating final pay