How do I calculate holiday pay rate for employees working variable hours?

When an hourly paid employee takes annual leave, you need to calculate and pay them the correct hourly rate of holiday pay. This includes employees on zero hour contracts, or with irregular working patterns.

In most cases you can use the 52-week average report for this, however there are some exceptions where you need to calculate this manually. Find our more at visit Gov.UK > 

 TIP: Visit our separate guide if you'd like to find out about HMRC changes to holiday accrual for casual workers from 1 April 2024 > 

Guidance on the 52-week calculation from the department for Business, Energy and Industrial Strategy (BEIS) state that:

• You must include 52 paid weeks in the calculation. if you haven't paid an employee in one of the 52 weeks in the calculation, you must include the pay values from another week prior to the 52-week period
• Where there are unpaid weeks in the calculation, the maximum period you can check for 52 paid weeks is 104 weeks
   NOTE: If an employee is paid in less than 52 weeks of the 104-week period, you must calculate the average with this lower number of paid weeks.
• You must treat a week where the employee is only paid SSP the same as a week with no pay at all 
   NOTE: If an employee was paid SSP alongside any normal pay in a week, you must include this week in the 52-week calculation. 

52-week average report

Your software includes a 52-week average report that you can use to calculate your employee's average hourly rate. However, you must only use this when there are no weeks to exclude in the 52-week period.

When you run the report, you can select the pay elements you'd like to include in the calculation.

The report provides you with the following information for the 52-week period:

• Total hours processed
• Average hours per week
• Total pay
• Weekly average

You can then divide the Weekly average value by the average hours value to establish the employee's average hourly rate.

Report calculation

This report totals the pay elements you selected and divides the total value by 52 and rounds to the nearest penny, to give a weekly average.

When you run the report, you can enter the date you'd like the 52 weeks to calculate from. The report calculates 52 weeks from this date, regardless of payments processed.

If there are any periods with no payments processed, or with SSP only, the report does not add further periods to the calculation. In this case you must manually calculate the relevant hourly rate for holiday pay.

To find out more about the report included in your software, visit our how do I run the Employee 52 Weekly Average Report guide.