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What is holiday pay?

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Holiday pay describes the amount of compensation employees get for taking time off during the holiday period.

How much money they get for this time off will depend on things like employer policies and the employee’s regular pay rate.

For companies that need to deal with global payroll, holiday pay can become more complex as laws and regulations vary depending on country.

How is holiday pay calculated?

Calculating holiday pay will depend on the country and other factors, but in general the process looks something like this:

  • Determine the employee’s holiday pay entitlement by considering local laws and regulations, salary rate, and the employee’s contract
  • Calculate the amount of holiday pay by multiplying the employee’s regular pay rate by the number of holiday pay owed to the employee during the holiday period

How do you calculate holiday pay for zero hours?

Calculating holiday pay for zero hours is where things can get a little trickier. In the case of zero hours, the employee is not guaranteed a specific number of hours per week or month, which is what makes it difficult to determine a regular rate of pay.

The steps to bypass this include determining an employee’s average weekly pay from a specific reference period – usually around 12 weeks, but this can vary – and then determining holiday pay entitlement based on an average week.

Is holiday pay taxed?

Holiday pay, for the most part, is subject to tax. How it’s taxed will depend on factors like total income and tax residency status. The country’s regulations and rules are also relevant.

In some countries there may be tax laws that make a portion of certain holiday pay tax-free or only partially taxed.

Who is entitled to holiday pay?

Holiday pay entitlement depends on a number of factors, as well as terms of the employment contract or collective bargaining agreement.

The exact criteria for holiday entitlement varies by country, but in general employees who work a certain number of hours or days will be entitled to a specific amount of holiday payment per year.

In some countries there may be limited exceptions, often concerning seasonal workers or specific industries.

Alternatively, certain religious holidays and observances may require employers to provide additional paid holiday days.

Managing holiday pay around the world

Managing holiday pay becomes a much trickier endeavor for companies with a global footprint, where the challenges of being in local compliance, accurately calculating holiday pay, and ensuring holiday pay is made on time and in the full amounts for each employee is multiplied.

Here’s where a global payroll provider can come to the rescue, offering:

  • Automated solutions with verification engines that can accurately determine the amounts to be paid
  • Support and guidance to employers in terms of local compliance and regulatory requirements
  • A streamlined and automated payment process
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