How to Calculate Holiday Pay for Irregular-Hours Workers

There is a calculation running in the background of every hospitality payroll in the UK. In most cases it is running wrong. Not obviously wrong. Not in a way that generates an immediate complaint or a letter from HMRC. Wrong in the way that a kitchen running fifteen degrees too hot runs wrong — everything looks fine until the service, and then several things fail at once.

The calculation is holiday pay for workers on irregular hours.

And the most common version of it — the one the software defaults to, the one the previous payroll manager set up three years ago and nobody has reviewed since — was ruled unlawful by the Supreme Court in 2022.

For irregular-hours and part-year workers, holiday pay must be calculated using a 52-week reference period — the average of the worker's earnings across the previous 52 weeks in which they were paid. Not a flat 12.07% of what they earn this week. Not a fixed amount based on their contracted hours. The actual average of what they actually earned, week by week, over the past year.

From April 2024, this is not guidance. It is the statutory method.

What "Irregular-Hours Worker" Means

The definition matters because it determines which workers the new method applies to.

An irregular-hours worker is someone whose hours in each pay period are, under the terms of their contract, wholly or mostly variable. Zero-hours contract workers are irregular-hours workers. Workers on annualised hours contracts where the distribution of hours varies significantly are irregular-hours workers. Seasonal workers employed under contracts where hours fluctuate with demand are irregular-hours workers.

What they are not: workers with a fixed contracted minimum hours who occasionally do additional overtime. Those workers have a regular base, and while overtime may need to be included in the holiday pay calculation in certain circumstances, they are not classified as irregular-hours workers in the statutory sense.

In hospitality, most casual and seasonal workers are irregular-hours workers. The kitchen porter on a zero-hours contract. The bar staff called in for events. The seasonal restaurant workers employed through the summer and laid off in autumn. The part-year school holiday relief workers.

All of them. The 52-week reference period applies to all of them.

The Calculation — Worked Through

Take a zero-hours worker who has been with the business for more than a year.

Go back 52 weeks. In each of those weeks, look at what they earned — not including weeks in which they earned nothing. If the previous 52 calendar weeks include some in which they didn't work, you go back further until you have 52 weeks of actual earnings, up to a maximum of 104 weeks.

Add up the earnings across those 52 paid weeks. Divide by 52. That is the average weekly pay.

When the worker takes a week of holiday, they are entitled to that average weekly pay figure, not what they would have earned in that specific week had they been working.

A concrete example. A bar worker averages £340 per week over their 52 qualifying weeks. They take one week of annual leave. They receive £340 for that week — not the £180 they might have earned in a quiet trading week, and not the minimum wage baseline their old payslip would have shown.

The difference between the old calculation and the new one, across a workforce of forty casual hospitality workers taking their statutory four weeks each, is not theoretical. It is a specific number. In most hospitality operations that number is higher than the payroll manager thought when they first ran the comparison.

Why 12.07% Was Used and Why It No Longer Works

The 12.07% method derived from a simple ratio: 5.6 weeks of statutory annual leave as a proportion of the 46.4 remaining working weeks equals 12.07%. So you took the worker's pay in any given period and applied 12.07% to calculate an accrual of holiday pay.

It was convenient. It was widely used. It was adopted as a default by most payroll software for casual workers.

The Supreme Court in Harpur Trust v Brazel [2022] found it unlawful. The ratio method produces lower holiday pay for part-year workers than the reference period method — because it treats the non-working periods as normal working periods and scales the holiday accordingly, when in fact those non-working periods should be excluded from the calculation entirely.

Following the judgment, HMRC and BEIS issued updated guidance. The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 codified the correct method in statute for holiday years starting on or after 1 April 2024.

If your payroll is still running the 12.07% accrual for irregular-hours workers, it has been wrong since April 2024. Possibly longer.

What Goes Into the Average

The average weekly pay calculation includes all remuneration that is intrinsically linked to the performance of the worker's duties.

That means:

In: basic pay, regular overtime, contractual commission, tips paid through TRONC or the employer's payroll (under the new tipping legislation, where tips are remuneration for work performed)

Out: pure discretionary bonuses unrelated to individual performance, expense reimbursements, one-off payments not connected to the duties performed

The overtime inclusion is where hospitality operators consistently undercount. A worker who regularly does weekend double shifts has those hours embedded in their average. Holiday pay calculated only on their base hourly rate — without the regular overtime — is underpaid holiday. The Employment Tribunal has dealt with a significant volume of exactly this scenario.

The Tribunal Risk

Holiday pay claims are brought as unlawful deduction from wages claims in the Employment Tribunal. There is no cap on the award for unlawful deduction. Claims can cover the previous two years of underpayments, and where the underpayments form part of a series of deductions — which systematic holiday pay miscalculation clearly does — the two-year window can extend back further.

A workforce of twenty to thirty casual workers, each underpaid on holiday by £500 to £1,500 annually over two years, generates an exposure in the range of £20,000 to £90,000. That range widens significantly for larger hospitality groups.

The workers do not need a union or a solicitor to bring these claims. They need a Tribunal form and a payslip. The Tribunal process for straightforward underpayment claims is accessible. Awareness among casual workers of their holiday pay rights has increased materially since the Brazel decision was reported widely.

The operator who finds out about the exposure through a Tribunal claim has fewer options than the operator who reviews their payroll calculation now.

bookd. runs the 52-week reference period calculation for hospitality payrolls with irregular-hours workers — the correct statutory method, applied monthly, to every worker it applies to.

If your payroll is running 12.07% or a fixed holiday accrual for zero-hours and casual workers, the question is not whether the calculation is wrong. It is how much the correction will cost and whether you find out voluntarily or through a claim.