Holiday Pay, Irregular Hours and Record-Keeping: A Practical Guide for Employers

Holiday pay remains one of the most technical and commonly misunderstood areas of employment law. For employers with part-time staff, casual workers, zero-hours arrangements, seasonal staff, shift workers, commission payments or regular overtime, the rules can be particularly difficult to apply in practice.

For employers, this is not simply a payroll issue. It involves contracts, working patterns, HR processes, record-keeping, staff communication and legal compliance. If handled incorrectly, holiday pay mistakes can lead to grievances, unlawful deduction from wages claims, employment tribunal proceedings, back pay liabilities, enforcement action and reputational damage.

This is also a particularly important time for employers to review their approach. Recent holiday pay reforms introduced specific rules for irregular hours and part-year workers, including the option to use rolled-up holiday pay in limited circumstances. From 6 April 2026, employers must also keep annual leave and holiday pay records for at least six years.

This article considers the key issues employers should be aware of when managing holiday pay, irregular hours workers and holiday record-keeping.

What Are the Basic Holiday Pay Rules?

Most workers are entitled to 5.6 weeks’ paid holiday each year. This includes full-time, part-time, agency, casual and zero-hours workers, provided they have worker status for employment law purposes.

Holiday pay should usually reflect the worker’s normal pay. For employees with fixed hours and fixed pay, this is often straightforward. For employees and workers whose pay varies because of shifts, overtime, commission, bonuses, allowances or irregular working patterns, the calculation can be more complicated.

Employers should therefore avoid assuming that basic salary or hourly pay is always enough. Depending on the circumstances, holiday pay may need to include payments linked to the performance of contractual tasks, regular overtime, commission or other payments that form part of normal remuneration.

The practical point for employers is that holiday pay should not be treated as a simple annual leave administration task. It should be checked against contracts, payroll data and the way people actually work.

Why Should Employers Take Holiday Pay Compliance Seriously?

There are several reasons employers should take holiday pay compliance seriously.

First, there is the legal risk. Workers can bring claims for unlawful deduction from wages where holiday pay has been underpaid. These claims can involve historic underpayments and may affect groups of workers where the same calculation method has been used across the business.

Secondly, there is the payroll risk. Holiday pay errors often arise because payroll systems are not aligned with contracts, working patterns or legal requirements. This is particularly common where businesses rely on casual staff, variable hours, commission, overtime or seasonal workers, which may complicate holiday pay calculations.

Thirdly, there is the record-keeping risk. From 6 April 2026, employers must keep records of annual leave and holiday pay for at least six years. This means employers need to be able to show not only that workers received the correct holiday entitlement, but also that holiday pay was calculated and recorded properly.

The practical point is simple: employers should not wait until a complaint or claim is made before checking whether their holiday pay arrangements are compliant.

Irregular Hours and Part-Year Workers

The rules for irregular hours and part-year workers have been a particular area of difficulty for employers, especially regarding holiday pay caluclations.

An irregular hours worker is broadly someone whose paid hours are wholly or mostly variable under the terms of their contract in each pay period. A part-year worker is broadly someone who is required to work only part of the year and has periods of at least a week during which they are not required to work and are not paid.

For holiday years starting on or after 1 April 2024, irregular hours and part-year workers build up statutory holiday entitlement as they work. The usual statutory accrual rate is 12.07% of hours worked in a pay period, based on the 5.6 weeks’ statutory minimum entitlement.

This can be useful for employers with casual, seasonal or variable-hours staff. However, it also creates practical challenges. Employers need accurate records of hours worked, holiday accrued, holiday taken, holiday carried over and holiday pay paid.

Employers should also check whether contracts and payroll systems have been updated. Older contracts may not reflect the current rules and may create confusion about entitlement, accrual and pay.

Rolled-Up Holiday Pay

Rolled-up holiday pay is where holiday pay is spread across the year by adding an additional amount to the worker’s pay, instead of paying holiday pay when holiday is actually taken.

Employers can now choose to use rolled-up holiday pay for irregular hours workers and part-year workers only. Where it is used, it should usually be calculated at a rate of at least 12.07% of the worker’s total pay in the relevant pay period and shown separately on the payslip.

This may be attractive for employers who engage casual or variable-hours workers, but it should not be adopted without thought. Employers still have a legal responsibility to ensure workers take the holiday they are entitled to. There is a risk that rolled-up holiday pay may discourage workers from taking holiday if they do not receive payment when they actually take time off.

Before introducing rolled-up holiday pay, employers should consider whether contract changes are required, whether workers have been properly informed, whether the payroll system can show the payment separately and whether managers understand that holiday still needs to be taken.

Holiday Pay and Normal Remuneration

Holiday pay errors often arise because employers do not properly identify what should be included in normal pay.

Depending on the circumstances, holiday pay may need to include:

• regular overtime payments;
• commission payments;
• payments linked to contractual duties;
• shift allowances;
• payments linked to professional or personal status, such as seniority or qualifications;
• other regular payments that form part of normal pay.

Employers should be particularly careful where employees receive variable pay to ensure compliance with holiday pay calculations. A payroll system that pays holiday based only on basic pay may be incorrect if the employee regularly receives overtime, commission or other payments that should be reflected in holiday pay.

This is an area where small errors can become expensive if repeated over time or across a workforce.

Record-Keeping from 6 April 2026

From 6 April 2026, employers must keep records of annual leave and holiday pay. The records must include holiday taken, holiday carried over from previous years, holiday pay and any payments in lieu of holiday, such as payments for unused holiday when someone leaves employment.

For holiday pay records, employers should be able to show what has been included in the calculation, such as commission, bonuses, overtime or other relevant payments. Records must be kept for at least six years from the date they were made.

Employers can keep records in a format they consider reasonable. This may include an HR system, payroll system, spreadsheet or other management system. The key issue is whether the records are accurate, complete and capable of demonstrating compliance.

Employers should also ensure that holiday records are kept in line with UK GDPR and data protection requirements.

Common Holiday Pay Problems for Employers

Holiday pay issues often arise gradually rather than through one obvious mistake.

Common problem areas include:

• casual workers who accrue holiday but rarely take it;
• zero-hours workers whose entitlement is not tracked properly;
• part-year workers whose contracts have not been updated;
• employees with regular overtime that is ignored when holiday pay is calculated;
• commission-based employees whose holiday pay is calculated on basic pay only;
• workers leaving employment without correct payment for accrued but untaken holiday;
• inconsistent treatment between departments or managers;
• poor records of holiday carried over;
• payroll systems that do not match contractual arrangements.

For SMEs, these issues often arise because holiday pay is split between HR, payroll, finance and line managers, with no single person checking the whole process.

Policies, Contracts and Payroll Systems

Employers should ensure that contracts, policies and payroll systems all say the same thing.

This may involve reviewing employment contracts, casual worker agreements, staff handbooks, annual leave policies, payroll settings, payslip wording and leaver processes.

Employers should consider whether documents explain:

• the holiday year;
• entitlement to annual leave;
• how holiday accrues;
• how holiday should be requested;
• rules on carrying holiday over;
• how holiday pay is calculated;
• whether rolled-up holiday pay is used;
• what happens when employment ends;
• who is responsible for keeping records.

A legally accurate policy is useful, but it will not solve the problem if managers and payroll teams do not understand how to apply it in practice.

Common Mistakes Employers Make

Employers should be particularly careful to avoid the following mistakes:

• assuming holiday pay is always based on basic pay only;
• failing to include regular overtime, commission or other relevant payments;
• using rolled-up holiday pay for workers who are not irregular hours or part-year workers;
• failing to show rolled-up holiday pay separately on payslips;
• failing to encourage workers to take holiday;
• not keeping proper records of holiday taken and carried over;
• failing to keep holiday pay records for six years;
• using outdated contracts or holiday policies;
• failing to calculate holiday correctly when someone leaves;
• relying on payroll software without checking the legal assumptions behind it;
• treating casual or zero-hours staff as having no holiday rights.

Many holiday pay disputes arise not because the employer intended to underpay workers, but because the rules were misunderstood or the systems were not properly updated.

Practical Steps for Employers

Employers should consider taking the following steps now:

1. Audit current holiday pay arrangements.
2. Identify any irregular hours, part-year, casual or zero-hours workers.
3. Check whether overtime, commission or allowances are included where required.
4. Review whether rolled-up holiday pay is being used correctly.
5. Check payslips show rolled-up holiday pay separately where applicable.
6. Review employment contracts, worker agreements and staff handbooks.
7. Check payroll systems are calculating holiday pay correctly.
8. Ensure records of holiday taken, carried over and paid are kept for at least six years
9. Train managers and payroll teams on the rules.
10. Take advice where historic underpayments may have occurred.

Taking these steps can reduce legal risk and help employers manage holiday pay in a more controlled and commercially sensible way.

Conclusão

Holiday pay, irregular hours and record-keeping are issues employers cannot afford to overlook. Handled poorly, they can lead to grievances, unlawful deduction from wages claims, employment tribunal proceedings, payroll liabilities and enforcement risk. Handled properly, they allow employers to manage annual leave fairly, consistently and with greater confidence.

The key for employers is to act early, avoid assumptions and check that contracts, payroll systems, policies and records all work together. This is particularly important for businesses with casual, seasonal, variable-hours or commission-based staff.

At Ronald Fletcher Baker, our Employment Team advises employers on holiday pay, employment contracts, worker status, payroll compliance, staff handbooks, policies and employment tribunal claims. If you require advice on holiday pay compliance or reviewing your annual leave arrangements, we can help you assess the risks and identify a practical way forward.