Rolling holiday pay into an hourly rate is one of those things that half of small employers have always quietly done and every employment lawyer has always told them not to. For years the lawyers were right: it was unlawful, and an employer doing it could be ordered to pay the holiday again, having already paid it once inside the rate.
That changed. For leave years beginning on or after 1 April 2024, rolled-up holiday pay became lawful in the UK — but only for two specific categories of worker, only at a prescribed rate, and only if it is presented in a particular way. Get any of those three wrong and you are back in the old position, having paid the money and still owing the holiday.
Who this actually applies to
Two categories, and no others.
An irregular hours worker is someone whose paid hours in each pay period under their contract are wholly or mostly variable. Think a bank or casual worker who is offered shifts and works a different number each week.
A part-year worker is someone contracted to work only part of the year, with at least one period in the leave year of a week or more where they are not required to work and are not paid. The classic case is term-time-only staff.
Everyone else — full-timers, regular part-timers on fixed days, anyone on set hours — is outside this entirely. For them, rolled-up holiday pay remains unlawful. They accrue leave in the normal way and are paid when they take it. An employer who reads about the change and applies it across the whole payroll has created a problem, not solved one.
The rule did not legalise rolled-up holiday pay. It legalised it for casual and term-time staff, on conditions. Applying it to your regular part-timers is the same mistake as before, with a fresh coat of paint.
The two lawful methods
For an irregular hours or part-year worker, you now have a genuine choice.
Accrual. Leave builds up at 12.07% of the hours actually worked in each pay period, and is paid at the point the worker takes it, at a rate based on their average pay over the previous 52 paid weeks. This is closer to how holiday works for everyone else, and it means the worker has money coming when they actually stop working.
Rolled-up. You pay an additional 12.07% of the worker's total earnings in the pay period, with each payday, as holiday pay. The worker still gets the leave — the right to time off is untouched — they have simply been paid for it in advance.
You choose per worker, and you should say which one applies in the contract. If you are drafting one for the first time, see what has to be in writing for a first hire.
Where 12.07% comes from, and when it is the wrong number
The figure is not arbitrary. Statutory holiday is 5.6 weeks a year. A full year has 52 weeks, of which 5.6 are holiday, leaving 46.4 working weeks. 5.6 divided by 46.4 is 12.07%. It is the percentage that turns pay for time worked into the right amount of holiday pay.
Where employers get caught out: 12.07% is the statutory minimum figure. If your contract gives more than 5.6 weeks — say you offer 5.6 weeks plus an extra week as a perk, so 6.6 weeks — then 12.07% underpays, and you need to recalculate on the same basis. Six point six divided by 45.4 is 14.54%. Offering better holiday than the law requires and then paying it at the statutory percentage is a surprisingly common and entirely self-inflicted underpayment.
A worked example
Take an illustrative bank worker in a care setting, paid £13.50 an hour, on rolled-up holiday pay, with statutory 5.6 weeks' entitlement.
In a four-week pay period she works 62 hours. Her pay for hours worked is 62 × £13.50 = £837.00. Her rolled-up holiday pay is 12.07% of £837.00 = £101.03. Her gross pay for the period is £938.03, and the payslip has to show those as two separate lines — £837.00 basic and £101.03 rolled-up holiday pay.
The following period she works 21 hours. Pay for hours worked £283.50, rolled-up holiday pay £34.22, gross £317.72. The percentage does not move with the hours; that is the whole point of the method.
Over the leave year she will have been paid holiday on every pound she earned. She is still entitled to take 5.6 weeks off — and if she asks for two weeks in August, you say yes and pay her nothing extra for it, because she has already had it.
The payslip rule people miss
Rolled-up holiday pay must be shown as a separate, clearly identified item on the payslip. It cannot be absorbed into the hourly rate and it cannot sit invisibly inside a single gross figure.
This is not a formatting preference. It is the evidential heart of the whole arrangement. If a worker later claims they were never paid their holiday, the payslip line showing rolled-up holiday pay every single period is what answers it. An employer who says "it was in the rate" and cannot point to the line has, in practice, not paid it — and may end up paying twice.
Two related points. Advertising the job at "£15.14 an hour including holiday pay" is where this most often goes wrong, because the worker reasonably believes their rate is £15.14 and the holiday is on top. State the rate as the rate. And check your minimum wage position on the pay for hours worked alone, not the combined figure — the minimum wage traps that catch small employers has more on where that bites.
What to do this week
Pull the payroll and put every worker into one of three buckets: regular (rolled-up is not available), irregular hours, or part-year. Most small employers find the second and third buckets are smaller than they assumed — a part-timer who works every Tuesday and Thursday is a regular worker, not an irregular one.
Then, for anyone in the second or third bucket where you want to use rolled-up pay: confirm your leave year start date is on or after 1 April 2024, get the method into the contract in writing, check the percentage against the contractual entitlement rather than assuming 12.07%, and open a payslip to confirm the separate line is actually there. That is a job of about an hour, and it is considerably cheaper than the alternative version of the same conversation at a tribunal.
Common questions
Can I use rolled-up holiday pay for all my staff to keep it simple?
No. Rolled-up holiday pay is lawful only for irregular hours workers and part-year workers, for leave years beginning on or after 1 April 2024. For every other worker — full-timers, and part-timers on fixed regular hours — it remains unlawful, and paying it that way does not discharge your obligation. The practical risk is that the worker takes their leave, is paid nothing for it because you consider it already paid inside the rate, and brings an unlawful deduction claim. A tribunal would be looking at whether you paid holiday pay when leave was taken, and "it was in the hourly rate" is not a defence for a worker outside the two permitted categories.
Does rolled-up holiday pay mean staff lose their right to take time off?
No, and this is worth being clear with staff about. Rolled-up holiday pay changes when the worker is paid for their holiday, not whether they are entitled to it. An irregular hours or part-year worker on rolled-up pay still accrues and is entitled to take 5.6 weeks of statutory leave, and you should still be recording leave taken. The practical difficulty is real, though: someone paid holiday in every wage packet has usually spent it, so taking a fortnight off means a fortnight with no income. Some employers deal with that by using the accrual method instead for anyone working substantial regular-ish hours, precisely so there is money there when they stop.
What rate do I use if I give more than the statutory 5.6 weeks?
You recalculate on the same principle rather than defaulting to 12.07%. The formula is the weeks of holiday divided by the working weeks left in the year. At the statutory 5.6 weeks that is 5.6 ÷ 46.4 = 12.07%. If your contract gives 6.6 weeks, it is 6.6 ÷ 45.4 = 14.54%. If it gives 6 weeks, it is 6 ÷ 46 = 13.04%. Using 12.07% while contractually offering more is an underpayment of holiday pay that accumulates quietly across every pay period and every affected worker, and it is one of the easier things for an employee or an inspector to spot from the paperwork.
What happens if a worker's hours become regular partway through the year?
Then they stop being an irregular hours worker, and rolled-up holiday pay stops being lawful for them from that point. This is the situation that catches employers out most often in practice: a bank worker gradually settles into a fixed three days a week, nobody revisits the paperwork, and the rolled-up arrangement runs on for another two years. Review the classification whenever someone's working pattern settles — and certainly at each leave year start. Moving them across means putting them on the normal accrual basis going forward, telling them clearly what has changed, and keeping a record of the date it changed.
