Should overtime be included in holiday pay?

The short answer: yes, if you work it regularly. Overtime regularly paid in the 52 weeks before your holiday must be included in your pay for the first 4 weeks of your statutory leave each year, whether the overtime is compulsory or voluntary. The other 1.6 weeks can be paid at your basic rate.

What the law says

Everyone is entitled to 5.6 weeks of paid holiday a year, 28 days for a full-time worker. Since 1 January 2024 the Working Time Regulations split it in two:

• 4 weeks must be paid at your normal pay. That includes overtime regularly paid in the 52 weeks before your holiday, payments linked to the tasks you are required to do (such as commission), and payments for your status, such as length of service or qualifications.
• 1.6 weeks can be paid at your basic pay, without overtime, unless your contract says otherwise.

The law does not say which weeks come first, so many employers simply include overtime for all 5.6 weeks. That is simpler and more generous.

Which overtime counts

The label your employer uses does not decide it. The test is whether the payment was regular enough to be part of your normal pay. Courts have included voluntary overtime that was worked often over a long period, such as ambulance staff in Flowers v East of England Ambulance Trust, and in the council workers' case Dudley v Willetts, which also covered standby and call-out pay.

How it is worked out

1. Look back at the last 52 weeks in which you were paid.
2. Skip weeks with no pay, such as unpaid leave, and go further back to replace them, up to 104 weeks.
3. Add up your pay in those weeks, including regular overtime.
4. Divide by 52. That is a week's holiday pay.

If you have worked for less than 52 weeks, use the weeks you have.

A worked example

Jo earns £14.00 an hour for 37.5 hours and has averaged 6 hours a week of overtime at time and a half over the last 52 paid weeks.

If Jo's employer pays only basic for all 5.6 weeks, Jo loses £126.00 for each of the 4 weeks: £504 a year before tax.

Irregular hours and part-year workers

If your hours vary a lot, or you only work part of the year, your holiday builds up at 12.07% of the hours you work in each pay period. For leave years starting on or after 1 April 2024, your employer can pay rolled-up holiday pay instead: an extra 12.07% on each payslip, shown as a separate line. That percentage must be worked out on your normal pay, so it should include regular overtime too. See holiday on zero-hours contracts.

Holiday does not grow because of overtime

Working overtime does not give you more days off. A full-time worker's statutory minimum stays 5.6 weeks, however many hours you do. What changes is how much each week of holiday is worth. If you are part-time and your contract counts holiday in hours, check how it is worked out. See part-time holiday entitlement.

If your holiday pay leaves out overtime

1. Compare a holiday week's pay with a normal week. If they match your basic only and you regularly do overtime, ask payroll in writing how it was calculated.
2. If it is not fixed, raise a formal grievance.
3. Contact Acas for free advice and early conciliation, which you must do before a tribunal claim.
4. A claim for unlawful deductions normally has to start within 3 months, less a day, of the last underpayment, and backdating is usually limited to 2 years.

When you leave, any unused holiday is paid out, and the same rules apply. See unused holiday pay when you leave.

This is general information about the law in England, Scotland and Wales. Northern Ireland has its own rules. For your own case, speak to Acas or an employment adviser.