May 29, 2019 Legal

New Government guidance seeks to tackle holiday pay non-compliance

The Government has issued new guidance to help employers calculate holiday pay, following an investigation that found high levels of non-compliance.
A key area of concern highlighted in the report is holiday pay calculations for staff without fixed hours or with variable pay. This particularly affects the care sector because of the high number of care staff working irregular hours and overtime and receiving shift premiums for working ‘unsociable’ hours.
If workers have variable hours or pay it is unlawful to calculate holiday pay based on their contracted hours. Workers should receive their “normal remuneration” when taking holiday. Holiday pay should reflect the pay they would have received if they had been at work and reflect average working hours, overtime payments and other allowances (e.g. sleep-in payments).
These rules only apply to the 4 weeks’ holiday provided by the European Working Time Directive (‘the Directive’); not the additional 1.6 weeks’ holiday provided by the UK Working Time Regulations (‘the Regulations’). It is therefore possible to pay holiday provided by the Directive and Regulations differently. However, whilst this might provide a financial saving it could be onerous to administer in practice.
For workers without variable hours or pay, holiday pay should be calculated by reference to their average pay over the previous 12-week period. The rules for calculating average pay are complex and you should seek specialist advice for further details.
If you have concerns about whether your holiday pay arrangements are compliant it is essential that you carry out an audit as soon as possible because:
• If holiday pay has been incorrectly calculated workers will have claims for unlawful deductions of wages in the Employment Tribunal and can claim for 2 years’ back pay. You will need to build a strategy for dealing with this.
• If a worker becomes aware of your non-compliance it may lead to a group claim by all staff, which could be costly and disruptive.
• If you are planning to sell your business you may have to give onerous indemnity protection and/or a retention to cover the risk of claims. Addressing the issue now will make the transaction run more smoothly.
Need HELP?
If you would like support with an audit and/or a free review of your employment contracts, please contact James Sage, Employment Partner and Head of Health & Social Care at
We’ve also just launched HELP, our specialist HR and Employment Legal Protection service for care providers, offering practical, commercially-focused and pragmatic advice, allowing you to free up your management time and minimise risk in dealing with HR issues. Visit


We speak up for the independent sector. All news articles are published by editor Viv Shepherd.

Read more posts by Viv