How to Calculate Holiday Pay Including Overtime (UK, 2026)

If an employee regularly works overtime, their holiday pay must include it. Under UK law, holiday pay has to reflect "normal pay" — basic salary plus regular overtime, commission, and shift allowances — averaged over the last 52 paid weeks. Paying basic salary alone during holiday is an unlawful underpayment of wages, and employees can claim the difference back years.

This is one of the most common and costly mistakes UK employers make. Here's how to get it right.

Does holiday pay have to include overtime?

Yes — for regular overtime. This was settled by a series of Employment Tribunal and court decisions, most notably Bear Scotland v Fulton (2014), which established that holiday pay must reflect what an employee normally earns. The Working Time Regulations 1998 (as amended) now require that the first 4 weeks of statutory holiday are paid at normal pay, not basic pay.

What counts as "normal pay"?

Normal pay includes any payment intrinsically linked to the work the employee performs:

• Regular overtime — both compulsory and voluntary, if worked with sufficient regularity
• Shift allowances and unsocial-hours premiums
• Commission that forms part of normal remuneration
• Work-related travel allowances (not reimbursements for actual expenses)

It does not include genuinely ad-hoc, irregular overtime, one-off bonuses unrelated to work performed, or expense reimbursements.

How to calculate it: the 52-week average

The legally recognised method is a 52-week reference period:

1. Take the employee's gross earnings for each of the last 52 weeks in which they were actually paid.
2. Skip any unpaid weeks — weeks with no pay (unpaid leave, or sickness with no SSP) are excluded, and you count back further to reach a full 52 paid weeks (capped at 104 weeks back).
3. Add the 52 weeks together and divide by 52 to get the average weekly pay.
4. Divide by the number of working days in the week (typically 5) for a daily holiday pay rate.

Worked example

An employee earns £500 basic per week but averages £120 of regular overtime and commission on top. Their normal weekly pay is £620, not £500. Over a one-week holiday, paying basic only would underpay them by £120 — and repeated across every holiday, that's a sizeable backdated claim.

Special cases

Employees with under 52 weeks' service — use however many complete paid weeks are available.

Zero-hours and irregular-hours workers — the 52-week average is especially important here, and is the method confirmed by the Supreme Court in Harpur Trust v Brazel (2022). Holiday pay for these workers cannot be simply pro-rated or capped at 12.07%.

Which weeks of holiday? Strictly, normal pay is required for the first 4 weeks of statutory leave (the EU-derived "Working Time Directive" element). The remaining 1.6 weeks can legally be paid at basic rate — but most employers apply the higher rate to all holiday to avoid the administrative complexity of two different rates.

The risk of getting it wrong

Underpaid holiday pay is an unlawful deduction from wages. Employees can bring a tribunal claim for a series of underpayments, and a single mistake repeated across a team can compound into a significant liability. It's a frequent and avoidable cause of employment disputes.

Automating it

Tracking 52 weeks of variable earnings per employee by hand — and capturing the correct rate at the moment each holiday is booked — is where the manual approach breaks down.

Coverboard does this automatically for UK employees: it maintains a rolling 52-week earnings history per person, calculates the correct daily holiday pay rate, and attaches that figure to each leave request so your payroll export already reflects overtime and variable pay. You can bulk-import earnings history from a CSV, and it flags any employee missing data before it affects a calculation.

---

This guide is general information, not legal advice. For decisions about a specific employee, consult an employment law professional.