How to easily calculate 52 week average for holiday pay

Managing holiday pay for employees with irregular hours or fluctuating earnings can be challenging, especially with evolving UK regulations. Two key methods simplify the process: the 52-week average holiday pay calculation and the reintroduced rolled-up holiday pay option. With recent changes to the Working Time Directive, employers now have more flexibility in choosing the best approach for their workforce. But what are 52 week average holiday pay and rolled-up leave options?  In this blog, we’ll explore both methods, their advantages, and how Employment Hero can simplify holiday pay management while adapting to the unique needs of your business.

What is 52 week average holiday pay?

For full-time employees on fixed hours and pay, holiday is relatively straightforward, and when these employees take leave, they receive the same pay at the end of the month as they ordinarily would.  However, it begins to get complicated when employees don’t work fixed hours, have overtime or don’t receive the same amount of pay every pay period. In this situation, managers must reference the holiday pay guidance and calculate accordingly.  Since 6th April 2020, holiday pay is based on a workers average pay over the last 52 weeks. This does not apply to employees who work regular hours, but the rule does apply to:

• Employees with irregular working patterns.
• Part-time workers.
• Casual employees.
• Those on zero-hour contracts.

The 52 week average ensures fairness by reflecting the employee’s actual earnings, including overtime and regular commissions, when calculating holiday pay.

How to calculate 52 week average holiday pay 

If you aren’t sure how to calculate 52 week average holiday, we have broken it down for you.

1. Review the past 52 weeks of pay: Gather data on the employee’s earnings over the last 52 weeks.
2. Exclude unpaid weeks: If an employee didn’t work or was unpaid during a week, exclude it and look further back to include a paid week.
3. Calculate the average pay: Add up the total pay from the qualifying 52 weeks and divide it by 52 to get the average weekly pay.
4. Apply this rate for holiday pay: Use the calculated average to determine the holiday pay for any leave taken.

The number you get by doing this calculation is the average amount you need to be paying your worker for a one week holiday. If the holiday exceeds a week, it will be necessary to work out how much your worker is owed per day. 

Introducing the 52 week average holiday pay functionality in Employment Hero 

Although it is possible to work out how much holiday pay you owe your workers manually, it is time consuming and leaves room for human error. This is especially true if managing leave payments is only one of your many responsibilities, if your workforce includes a mix of full-time, part-time, and casual employees.  Employment Hero simplifies this process with advanced configuration tools tailored to your business needs.

Custom Leave Policies

Employment Hero allows you to create leave policies that cater to all types of employees, from full-time staff with consistent hours to part-time and irregular workers who require more nuanced calculations.

Pay Type Inclusions

Each pay type—such as overtime, commissions, and bonuses—can be configured to either be included or excluded from the 52 week calculation. This ensures that holiday pay calculations are compliant and reflective of individual circumstances.

Automation and Accuracy

By automating holiday pay calculations, Employment Hero not only saves time but also reduces the risk of errors. With compliance built into the platform, you can confidently manage holiday pay according to the latest UK regulations.

Introducing Rolled-Up Holiday Pay

The recent updates to the Working Time Directive in the UK have reintroduced rolled-up holiday pay as an alternative method to calculate holiday pay for employees with irregular hours or part-year workers.

What is Rolled-Up Holiday Pay?

Rolled-up holiday pay means incorporating an employee’s holiday pay entitlement into their regular wages. Instead of receiving a separate payment when they take leave, the employee’s holiday pay is proportionally “rolled up” into their standard pay. For example, if an employee is entitled to 12.07% holiday pay (based on statutory annual leave entitlement), this percentage is added to their hourly rate or weekly earnings.

Advantages of Rolled-Up Holiday Pay:

• Simplicity: Eliminates the need to calculate holiday pay separately.
• Clarity: Workers know exactly what they’re entitled to upfront.
• Flexibility: Works well for casual or zero-hour contract workers who prefer predictable payments.

Simplify your HR and payroll processes with Employment Hero

Navigating holiday pay rules doesn’t have to be a headache. By understanding both the 52-week average calculation and rolled-up holiday pay, you can ensure your employees are paid fairly while staying compliant with UK regulations. With Employment Hero, you can manage leave policies tailored to each employee type, configure pay inclusions, and streamline compliance. Ready to simplify payroll and holiday pay management? Get started with Employment Hero today! Disclaimer: The information in this article is current as at 2 August 2022, and has been prepared by Employment Hero Pty Ltd (ABN 11 160 047 709) and its related bodies corporate (Employment Hero). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. Employment Hero does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and seek professional advice before making any decisions or relying on the information in this article.