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My employee does regular overtime; how do I calculate his holiday pay?

Just how do you calculate holiday pay with overtime?

The difference between now and a year ago is that the reference period for overtime and irregular hours has been set by the Government at 52 weeks. This was a key change in the Good Work Plan that took effect in April this year and gives employers a fixed period of time to use as a reference point.

Here you can get much more detail with regards to irregular working patterns, but the essence of this change is the reference period and that holiday pay is calculated as an average of the hourly/daily rate over the previous rolling 52 weeks.

If an employee has been with you less than a year then you simply use the whole period of employment up to a year and thereafter, use the 52 week reference period.

Worked Example

An employee is contracted to work 40 hours per week over a 5-day week (£10 per hour) but has completed a total of 1 hour overtime each day paid at time and a half (£15 per hour).

40 hours per week @ £10ph = £400

5 (days x 1 (hour) = 5 hours overtime per week @ £15 per hour = £75 per week

£400 + £75 = £475 per week earned

£475 / 5 days = £95 per day

So, your employee should be paid £95 for each day’s holiday he takes. This applies to the statutory minimum holiday entitlement so if you allow employees to take more holiday, you don’t have to apply this average calculation to the additional holiday (to be honest, we recommend that you do continue to include an allowance for overtime rather than having two separate holiday pay rates).

There is no need to worry about the 52 week reference period in this example because overtime is the same each week.

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