How Holiday Pay Is Calculated When Your Pay Varies

2 July 2026

If your pay is the same every month, holiday pay is easy: you get paid the same when you are off as when you are in. If your pay moves around, because of overtime, commission, shift premiums, bonuses or variable hours, then working out what a week of holiday is worth becomes the single most common source of underpayment in UK employment.

The answer is a 52-week average, and the detail of how that average is built is where the money is.

The 52-week reference period

Holiday pay for a worker with variable pay is based on their average pay over the previous 52 weeks.

Weeks in which the worker received no pay, or reduced pay, are excluded and replaced with earlier weeks. That includes weeks on Statutory Sick Pay, weeks on statutory family leave at a reduced rate such as Statutory Maternity Pay, and unpaid weeks.

The employer can go back further to find 52 paid weeks, but no further than 104 weeks. If there are not 52 paid weeks even within that, the average is based on however many paid weeks there are.

Why the exclusions matter so much. Someone who had eight weeks off sick would otherwise have those eight low-pay weeks dragging their holiday pay average down for a year afterwards. Excluding them is the whole point, and it is also the step employers most often skip.

What has to be included in the average

Holiday pay is not "basic pay". For the first four weeks of leave it must reflect your normal remuneration, which includes:

Payments linked to tasks required under the contract, for example commission
Payments related to professional or personal status, for example a payment for length of service or a qualification
Overtime payments, where they have been paid regularly over the past year

Regularly is doing a lot of work in that last one. Overtime worked most weeks over the course of a year is regular even if the amount varies. Genuinely one-off overtime for a single project is not. Shift allowances, standby payments and call-out payments are treated the same way: if they are a normal part of what you earn, they count.

The four weeks and the other 1.6 Weeks

This is the distinction almost every article on the subject skates over, and it is the reason two colleagues can both be paid correctly and get different amounts.

Your 5.6 weeks of statutory leave is made up of two parts with different origins. The first four weeks derives from EU-derived law and must be paid at your normal rate of pay, including commission and regularly paid bonuses and overtime. The additional 1.6 weeks can lawfully be paid at basic remuneration, excluding bonuses and additional payments.

Many employers choose to pay all 5.6 weeks at the normal rate, because running two different rates through payroll is a headache for the sake of a small saving. But they are not obliged to, and if your holiday pay drops for some of your leave, this is usually why.

Pay element	First 4 weeks	Additional 1.6 weeks
Basic pay	Included	Included
Commission linked to contractual tasks	Included	May be excluded
Regularly paid overtime	Included	May be excluded
Payments for status, such as length of service	Included	May be excluded
Regular performance bonuses	Generally included	May be excluded
One-off discretionary bonuses	Generally excluded	Generally excluded

Check your contract for which leave is which. Where a contract does not specify the order in which the four weeks and 1.6 weeks are taken, working out which rate applies to which day gets messy. A well-written policy says explicitly that the four weeks are taken first.

A worked example

A retail supervisor works variable hours and earns a mix of basic pay, a regular Sunday premium and quarterly commission. Their pay over the last 52 paid weeks totals £24,960, excluding six weeks of Statutory Sick Pay which were replaced with earlier paid weeks.

Average weekly pay: £24,960 ÷ 52 = £480

A week of holiday within the first four weeks: £480

A week of holiday within the additional 1.6 weeks, if the employer pays basic remuneration only and basic is £405 a week: £405

Difference across the 1.6 weeks: about £120 a year

Now the version where it goes wrong. If the employer had left the six Statutory Sick Pay weeks in the average, at roughly £123 a week, total pay across the 52 weeks would have been about £22,818 and the average £439. That is £41 less for every week of holiday, and around £230 across a full year's leave, for one avoidable error.

Irregular hours and part-year workers are different again

For leave years beginning on or after 1 April 2024, irregular hours and part-year workers accrue leave at 12.07% of the hours they work in each pay period. Their employer can also choose to use rolled-up holiday pay, calculated at at least 12.07% of total pay in the pay period and shown as a separate item on the payslip.

Where rolled-up holiday pay is used, the whole 5.6 weeks is paid at the normal rate, so the four weeks versus 1.6 weeks distinction does not create two different rates. Where it is not used, the 52-week average applies as above.

Bonuses, and which ones count

Bonuses are the murkiest area. A rough guide:

Performance bonuses paid regularly and linked to your work generally count towards the four weeks.
Purely discretionary one-off bonuses generally do not.
Annual bonuses are argued about. Where a bonus is genuinely part of normal remuneration, an appropriate proportion may need to be included.

If a significant part of your income is bonus and your holiday pay does not reflect it, that is worth asking about specifically rather than assuming it is settled.

Salaried staff with variable elements

If you are on a fixed salary but regularly earn overtime or commission on top, you are not a "fixed pay" worker for holiday purposes. Your holiday pay for the first four weeks should reflect that additional regular income. A great many employers pay salaried staff their basic salary during holiday and stop there, which is straightforwardly wrong where regular overtime or commission is part of normal pay.

This one is worth checking on your own payslips: compare a month with a week of leave in it to a month without, and see whether the variable elements are missing rather than simply lower.

What to do if yours looks wrong

Gather 52 weeks of payslips. You cannot argue an average without the data behind it.
Work out your own figure. Total the pay, exclude the reduced-pay weeks, divide by 52.
Ask payroll how they calculated theirs, in writing. Ask specifically which weeks were included and which pay elements.
Raise a grievance if it is not resolved.

Underpaid holiday pay can be claimed as an unlawful deduction from wages. The time limit is three months less one day from the deduction, or from the last in a series of deductions, with a two-year backstop on how far back a series claim can reach. You must contact Acas for early conciliation before making a claim.

To check what your entitlement should be in the first place, use the holiday entitlement calculator, and see the holiday entitlement guide for how the rules fit together.

This is general information rather than legal advice. Holiday pay for variable earnings is genuinely complicated, and for a specific dispute you should speak to Acas or an employment solicitor.