Holiday Pay – Top 10 things you need to know

Holiday Pay – BEIS

Following the Supreme Court’s ruling on holiday pay, here is a list of what you need to do:

  1. Stop using 12.07% of pay or hours (unlawful)
  2. Stop the practice of rolled-up holiday pay (unlawful)
  3. Stop using holiday entitlement based on hours/days worked
  4. Start recording weekly pay for each worker – and maintain up to 104 weeks of history alongside your current pay frequency (monthly, 2/4-Weekly etc.)
  5. Start calculating 1-weeks pay as the rolling average over the last 52 paid weeks (exclude unpaid weeks) or fewer weeks if you do not have 52
  6. Decide on a holiday year reset date – e.g. a company-wide date or personalised individual workers’ start date
  7. Ensure all workers receive 5.6 weeks of holiday pay entitlement per year (as calculated above) accrued in year 1 or prorated thereafter from the start date/holiday year reset date
  8. Decide how to convert weeks into days (or hours) e.g. 1-week = 5-days is a good starting point which allows workers to book 28 days in a year and receive 5.6 week’s pay
  9. Decide on which days are bookable (weekdays, weekends, public holidays)
  10. Allow workers to book and take holiday ensuring they do not work and paid as above – the principle is that they need to earn the same pay while on holiday as they would at work

Holiday Pay – 12.07% RIP

The supreme court has dismissed the Harpur Trust vs Brazel appeal and so 12.07% cannot be used for holiday pay. All workers need to receive 5.6 weeks holiday pay (not pro-rated) and zero paid weeks need to be excluded from 1-week’s average pay.

Payroll will need to maintain weekly pay records, even if using a non-weekly pay frequency e.g. monthly or 2-weekly. Software will need to retain a list of the last 104 weeks (maximum) on each employee and average 52 non-zero weeks (or as many as there are). Workers enter holiday request on an app, managers approve on the app and the new 52-week holiday pay average is automatically added to the payroll with a daily and weekly message – all with with Zero manual steps.

The text below is reproduced from here

Harpur Trust (Appellant) v Brazel (Respondent) [2022] 
UKSC 21 On appeal from: [2019] EWCA Civ 1402 

Date:20 July 2022


Lord Hodge, Lord Briggs, Lady Arden, Lord Burrows, Lady Rose. 

Background to the Appeal 

This appeal concerns the calculation of annual leave and holiday pay entitlements for workers who work for varying hours during only certain weeks of the year but have a contract throughout that year (“part–year workers”).

The Respondent, Ms Brazel, is a music teacher at a school run by the Appellant, the Harpur Trust. Ms Brazel works a variable number of hours each week and is only paid for the hours that she teaches during term time. 

It is accepted by the Harpur Trust that Ms Brazel is a “worker” within the meaning of the Working Time Regulations 1998 (“the WTR”). This entitles her to 5.6 weeks of paid annual leave. She takes this leave during the school holidays, but because she is not required to work at all during the school holidays, in practice there are more than 5.6 weeks each year in which she does not work at all. 

Before September 2011, Ms Brazel’s holiday pay for the 5.6 weeks was determined by calculating her average week’s pay in accordance with section 224 of the Employment Rights Act 1996 (“the 1996 Act”) and multiplying that by 5.6. At the relevant time section 224 defined a “week’s pay” as the amount of a worker’s average weekly pay in the period of 12 weeks ending with the start of their leave period, ignoring any weeks in which they did not receive any pay (“the Calendar Week Method”).

From September 2011, however, the Harpur Trust changed its calculation method. In line with Acas guidance (now re–written), they calculated Ms Brazel’s hours worked at the end of each term, took 12.07% of that figure and then paid Ms Brazel her hourly rate for that number of hours as holiday pay (“the Percentage Method”). 12.07% is the proportion that 5.6 weeks of annual leave bears to the total working year of 46.4 weeks. The Harpur Trust therefore treated Ms Brazel as entitled to 12.07% of her pay for the term, reflecting only the hours she actually worked. 

The effect of this change was that Ms Brazel received less holiday pay. She brought a claim before the Employment Tribunal for unlawful deductions from her wages by underpayment of holiday pay. The Employment Tribunal dismissed her claim but the Employment Appeal Tribunal allowed her appeal holding that the statutory regime required the use of the Calendar Week Method. The Court of Appeal dismissed the Harpur Trust’s appeal.


The Supreme Court unanimously dismisses the Harpur Trust’s appeal. Lady Arden and Lady Rose give a joint judgment with which the other members of the Court agree. 

Reasons for the Judgment

The Harpur Trust argue that a part–year worker’s leave must be pro–rated to account for weeks not worked. As the WTR were enacted in part to implement the EU Working Time Directive which remains “retained EU law” following Brexit, the Harpur Trust contend they must apply what they refer to as the “conformity principle” arising from the EU case law on the Directive. They argue that this principle requires that the amount of annual leave (and therefore holiday pay) should reflect the amount of work that Ms Brazel actually performs. [3-4]

The Supreme Court concludes, however, that European law does not prevent a state from making a more generous provision than the “conformity principle” would produce. The amount of leave to which a part–year worker under a permanent contract is entitled is therefore not required to be, and under domestic law must not be, pro–rated to be proportional to that of a full–time worker. [52]

The Harpur Trust suggested two alternative methods for calculating holiday pay arguing that adopting one of these is necessary because although Ms Brazel is better off under the Calendar Week Method, other hypothetical workers working other irregular hours patterns would be worse off under that approach than under the Harpur Trust’s suggested methods. [53-56]

The Supreme Court identifies multiple problems with the Harpur Trust’s proposed methods. First, they are directly contrary to the statutory method set out in the WTR in a number of ways. The incorporation into the WTR of the definition of an average week’s pay in the 1996 Act for the purposes of determining holiday pay – including for those who work very irregular hours – was a choice made by Parliament. The choice was that this should be calculated in accordance with a 12–week reference period ignoring weeks in which no pay is received. [67-68]

Secondly, the two methods proposed by the Harpur Trust would require complicated calculations requiring all employers and workers to keep detailed records of every hour worked, even if they were not paid at an hourly rate. [70]

The Supreme Court also rejects the Harpur Trust’s contention that the Calendar Week Method leads to an absurd result whereby a worker in Ms Brazel’s position receives holiday pay representing a higher proportion of her annual pay than full time or part time workers working regular hours. A slight favouring of workers with a highly atypical work pattern is not so absurd as to justify the wholesale revision of the statutory scheme which the Harpur Trust’s alternative methods require. [72]

References in square brackets are to paragraphs in the judgment


This summary is provided to assist in understanding the Court’s decision. It does not form part of the reasons for the decision. The full judgment of the Court is the only authoritative document. Judgments are public documents and are available online. Decided cases

Holiday Pay, but not as we know it

The law on holiday pay changed as of 6 April 2020. Employers must follow the new law.

Back in 1998, the Working Time Regulations (WTR) brought the entitlement for 5.6 weeks holiday into law. Although simple and clear for full-time employees, nothing was articulated for other working patterns. Given this ambiguity, many quickly came to use the well-known “12.07% rule”. This was derived by assuming that a full-time worker would work 46.4 weeks and take 5.6 weeks holiday and by simple maths 5.6 ÷ 46.4 = 12.07%. This was often used as the basis for workers who needed to receive holiday pay such as hourly workers, part-time workers, and zero-hour workers. 

However, it is important to note that 12.07% was never the law. The law as per WTR only stated 5.6 weeks and therefore 12.07% was merely a practical and convenient interpretation of the law. Because of this, it was challenged in several tribunal and legal cases. The most notable case was Harpur Trust vs. Brazel, a music teacher who only worked certain hours during term time. The Employment Appeal Tribunal (EAT’s) decision first ruled that 12.07% could not be used. This was then referred to the Court of Appeal in 2019. The Court of Appeal confirmed EAT’s ruling that holiday pay cannot be based on 12.07% and must be based on the WTR wording. In effect, EAT and the Court of Appeal confirmed that 12.07% was no longer a legal interpretation of the WTR.

The government department responsible for holiday pay, BEIS (Business, Energy and Industrial Strategy), brought this change into effect in April 2020 along with the new 52-week holiday pay reference period. The law on holiday pay changed as of 6 April 2020 and employers must follow the new law:

  • The principle is that that pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work. Put another way: one weeks holiday equals one week pay, as averaged over 52 weeks.
  • Every worker is entitled to 5.6 weeks holiday per year. 

For workers with fixed hours e.g. full-time or part-time x hours per week, one weeks holiday equal’s one week’s working pay. Even if a worker only works one day per week, they are still entitled to 5.6 weeks, but each week will only be paid at the pay rate of 1-day.

Where working hours vary, they have produced [not for the faint hearted] a 30-page guide which details how one week’s pay must be calculated. For those who need a quick summary: find the average of 52 weeks, don’t go back further than 104 weeks, include only paid weeks and use fewer if you can’t find 52.

ACAS have now removed all prior endorsement around the 12.07% rule and have re-written their guidance to fully reflect the law. The Government calculator no longer includes any calculation that uses 12.07%

Some have doubted this clarification of the law because it can give bizarre results. For example, a worker who doesn’t work every week receives the same 5.6 weeks holiday as someone who works every week;  Working for one week and earning £1,000 would mean £5,600 holiday pay even if no work is done for the next 51 weeks. All these arguments, and many more, were put by the defence and all were rejected by the Court of Appeal – they simply stated that there was nothing in the WTR that says part-year workers should be treated less favourably than full-time workers.

The law on holiday pay can now be very simply summarised:

  1. You cannot use the 12.07% rule as the basis for holiday pay
  2. Every worker must receive 5.6 weeks holiday, regardless of their working pattern
  3. One week holiday pay is the average over 52-weeks, excluding unpaid weeks 
  4. Rolled-up holiday can no longer be used and if a contract includes this, it must be renegotiated. A worker must take their holiday and not be at work.

Workers have a 2-year limit for historic holiday pay claims, but multiple claims may be made if the practice continues.

In practical terms though, this is far from simple. Payroll, HR and finance departments now have the responsibility to put systems and processes in place that implement the law. Anyone using 12.07% as a convenient shortcut will need to stop as it is no longer lawful. 

At paiyroll®, we have extensive experience in implementing fully automated holiday pay systems that comply with the WTR and the new law. Feel free to get in touch.


What the Supreme Court ruling means for you – Holiday Pay and NMW

Uber drivers are workers not self employed, Supreme Court rules

The Supreme Court decided that Uber drivers are workers, so what does that mean for your company? If you pay any zero hours workers, and they have worker or employee status, then you may think all is well. However, there are 3 key questions you need to ask following this decision.

Are all your zero hour workers:

  1. Auto-enrolled (AE)?
  2. Above the National Minimum Wage (NMW)?
  3. Receiving Holiday pay under the new April 2020 Holiday pay law?

If you can’t answer an emphatic Yes, read on…

Although many employers now ensure their hourly rates are above the minimum, there are many checks you still need to perform. The calculation guidance is published on GOV.UK, but if you want to know how to automate this then read more.

The law on holiday pay changed in Apr 2020 and the method for calculating pay changed. This is known as the 52-week pay reference period because you need to look back over 104 weeks and average only 52 paid weeks. The full details of how to perform the calculation are provided on GOV.UK. If you want to automate the process entirely then read more

Please feel free to access our free holiday pay resources by clicking below:

Everything you wanted to know about RTI Payroll IDs but were afraid to ask

Payroll IDs (HMRC)

Whilst appearing deceptively simple, HMRC RTI Payroll IDs are actually quite complex! This article attempts to explain how they work and how to avoid any issues.

Most employees only have a single job and if this were the case, RTI payroll IDs might have never existed. However:

  • Employees can have more than one job with the same employer and
  • HMRC treats the tax records of anyone re-employed separately for each “employment” in a tax year.

RTI payroll IDs are not merely text labels – instead, HMRC uses them to track each job or employment. The easiest way to think about payroll IDs is to think about each payroll ID meaning one employment:

Payroll ID = Employment

Manually entered or automatically generated?

Each payroll software handles payroll IDs differently. Some systems require the payroll administrator to enter these manually, potentially this can be the company Works ID. Other systems automatically generate the payroll ID. It is important to understand how your system generates the payroll ID i.e. what is sent to HMRC in each FPS (Full Payment Submission).

A Payroll ID can be 35 characters long (any alphanumeric). Even if you don’t send a payroll ID, then HMRC assumes the default – we call this the None payroll ID. Each payroll ID must be unique for each employment. This also means you must know which previous Payroll IDs were used, and when they were used, in case you re-employ someone.

How HMRC process YTD figures and payroll IDs

Every time HMRC receive an FPS with YTD (Year To Date) totals for an employee, they update the employment record with new YTD figures. As long as you always send the same payroll ID (or never use a payroll ID ie. the None one), everything will be dandy as HMRC will have a single employment record which is successively updated. Here is a simple example before assuming 7,000 YTD and after an FPS with a new 1,000 payment and 8,000 YTD:

EmployeePayroll IDYTD
John SmithNone7,000
Before FPS Sent
EmployeePayroll IDYTD
John SmithNone8,000
After FPS sent

Now, if HMRC receives a new Payroll ID for this employee in an FPS, their system is programmed to add a 2nd employment record. This record has the new payroll ID and the new YTD figure. Below is an example, where a new Payroll ID is sent with the label ‘2’:

EmployeePayroll IDYTD
John SmithNone7,000
John Smith28,000
Incorrect Payroll ID in FPS

The system now assumes that the employee has been re-employed or they have a 2nd job. Note how all figures are incorrect! Tax codes and your PAYE bill will then be calculated based on the two employments. If this was intended, then life is good. However, if the 2nd payroll ID was sent in error, then life becomes not so good.

Changing payroll software

If you change payroll software or take over payroll from someone else, you really need to understand payroll IDs. If you inadvertently make a mistake, every payroll record will be duplicated and your PAYE bill will almost certainly be wrong. Because RTI is an entirely automated system, it may take many phone calls, corrective submissions and a lot of pain and misery to resolve!

If you operate parallel runs, and the new payroll software uses different payroll IDs, then you need to ensure that the first live run changes the payroll ID.

Changing Payroll IDs

HMRC provide a fully automated way to change payroll IDs in the FPS. If used correctly this will avoid any issues. If you want to send a new payroll ID, your payroll software must send ‘Yes’ in a ‘Payroll ID changed indicator’ for each employee. The HMRC system will then automatically keep the original employment record but simply change (update) the payroll ID label from the old to the new.

If an employee has more than one job, then you must also send the Old payroll ID. This is because HMRC must know which one you are changing. If you do not supply it, and they have more than one job, then you are back to the duplicate payroll IDs, incorrect PAYE bill and weeks of pain and misery. Below is an example of a payroll ID changed from ‘2’ to ‘ABCDE’:

EmployeeOld payroll ID[new] payroll IDYTD
John SmithNoneNone7,000
John Smith2ABCDE1,000
Correctly updated payroll ID in FPS


Having completed multiple payroll imports, we came to one clear conclusion. If you want to avoid the issues in getting payroll IDs wrong, the only option is to select payroll software that automates payroll IDs. Here is our paiyroll® checklist to use when selecting payroll software to handle payroll IDs:

  1. Select a payroll package that automatically generates payroll IDs. As well as one less data field to enter, you can’t make a payroll error and reuse an old payroll ID. When you add a new starter or make someone a re-starter, the system will automatically send the correct payroll ID.
  2. Select a payroll package that can import all payroll IDs from your old software.
  3. Check that the payroll software can automatically change imported payroll IDs and send the new payroll IDs together with the Payroll ID changed indicators. This must be after all parallel runs have been completed and in the first live FPS for each employee (these may be different).
  4. Ensure that the software lets you use a separate works ID for your own purposes. This might be for reporting (company ID) or for integration with other systems like Time and Attendance (T&A). This separates the complexity of HMRC RTI payroll IDs from your own works ID. For example, some companies have a policy that re-starters always use the same works ID – which of course would conflict with HMRC who require different payroll IDs for each employment.
  5. Because payroll IDs are critical, you should know the payroll ID is. The system should also provide a clear indication in the infrequent case that a Payroll ID changes.

Automated payroll IDs mean that duplicated records and incorrect PAYE bills are a thing of the past.

Further reading – HMRC guidance

  • If you change payroll software you must send a ‘Payroll ID changed indicator’ for every employee see here.
  • If an employee has more than one job, you must supply the old payroll ID
  • Use a different ID if you re-employ someone – see Giving your employee a payroll ID
  • HMRC video on Payroll IDs

Holiday Pay

Are you compliant with the new 52 week reference period?

Calculating holiday pay

From April 2020, the law regarding Holiday Pay for workers who do not have fixed hours or pay changed. This must now be calculated using a 52-week reference period. Unpaid weeks must not be included.

Previously, there were two methods used for holiday pay:

  1. Pay 12.07% of pay as holiday pay
  2. Calculate the average pay over 12 weeks

Unfortunately, neither of these two methods comply with the new law. In fact, the notion of rolled-up holiday pay is no longer acceptable.

All workers are entitled to 5.6 weeks paid holiday per year.

The first change is that a 52 week reference period must be used (not 12). The 52 weeks used for the calculation, can only be “paid weeks” i.e any unpaid weeks where the worker was not paid, must be ignored.

A welcome change is that employers are not be required to look back further than 104 weeks (2 years). However, because of the requirement to use 52 paid weeks, it will not be possible to only use 1 year of history – you will need to disregard unpaid weeks.

If the employer maintains 104 weeks of historical pay data and is unable to find 52 paid week, then the maximum number of paid weeks can be used. For example, you only paid the worker in 40 weeks of the last 104, then it is sufficient to use these weeks.

Importantly, the pay data used must be weekly data. You can not use 2-weekly, 4-weekly or monthly pay. If workers receive pay other than weekly, then it will be necessary to maintain records of the pay and hours for each week in order to do the weekly calculation.

How to calculate holiday pay?

While it sounds simple, the calculation is difficult to do in practice. The full details can be found here. It means:

  • Maintaining a detailed record of 104 weeks of pay data for each worker – when they were paid (date, amount).
  • Every time holiday is booked, a new weekly average must be calculated using 52 paid weeks (disregarding the unpaid weeks) looking back up to 104 weeks.
  • Only use the elements of pay that should be included for holiday pay.
  • The pay history must be detailed enough to be computed per week.
  • Once you have a weekly average, you will need to convert the weekly amount to the number of days actually taken as holiday (workers don’t often take exact multiples of weeks).

Can I do this in Excel?

Probably not as you will need programming skills. It is difficult because of the need to ignore unpaid weeks and only use 52 weeks of paid data. It is not a fixed calculation across 52 or 104 cells. An excel sheet would need to be updated each week with new pay data for every worker where the older data was removed. Furthermore, 2 payments which fall in the same week must be added together and used a single week amount.

Automating Holiday pay

The only practical way to implement the new legislation is to use payroll software which can automate this task. Holiday pay then becomes another calculation in payroll and is as easy as PAYE, NIC or Auto-enrolment. Here are the questions to ask when choosing new payroll software for holiday pay:

  1. Does it record every payment made by date in order to be able to perform the required weekly calculations?
  2. Can the software import 104 weeks of historical pay data. This is critical otherwise you will need to wait for 2-years to be compliant.
  3. Can the software import existing data from existing payroll, HR, CRM or ERP system?
  4. Does the software allow you to specify only the Pay Items that need to be included in the holiday pay calculation?
  5. If you pay monthly, 2 or 4-weekly, does the payroll software record precise weekly data?
  6. Does the payroll software keep records of each holiday booking?

These requirements are critical for automating holiday pay.

Checkout our full set of holiday pay resources here