Holiday Pay

Holiday pay refers to the wages an employee receives while taking time off from work for annual leave or public holidays. It ensures that workers can take time off without suffering a loss of income. In most countries, employees are legally entitled to a specified number of paid holidays each year, regardless of whether they are full-time or part-time.

In the UK and across the EU, holiday pay is often calculated based on an employee's average earnings, including regular bonuses and overtime. This ensures fair compensation during periods of leave.

Holiday pay plays a critical role in promoting work-life balance, preventing burnout, and maintaining productivity. From a legal standpoint, it also helps businesses avoid compliance issues and costly disputes.

For global teams, offering fair and transparent holiday pay policies not only strengthens employee retention but also improves your employer brand, particularly in competitive hiring markets.

“Holiday pay is not just a legal requirement, it’s a key part of supporting employee wellbeing and ensuring compliance across global teams.”
— HR Operations at Native Teams

Holiday pay can vary depending on local regulations and employment arrangements. The main types include:

Statutory holiday pay

This is the minimum paid time off required by law. For example, UK workers are entitled to 5.6 weeks of paid holiday per year (including public holidays).

Contractual holiday pay

Some employers provide more generous holiday pay than the legal minimum. These terms are usually outlined in employment contracts or collective agreements.

Public holiday pay

In some countries, employees are entitled to paid leave on national or religious public holidays. Others may provide additional pay (e.g. time-and-a-half) if an employee works on a public holiday.

Accrued holiday pay

This is holiday pay earned over time. It's especially relevant for employees who are leaving a job, as they must be compensated for any unused leave.

Holiday pay is typically calculated based on an employee’s average weekly earnings over a reference period, which may include basic pay, overtime, commissions, and bonuses.

Example (UK): If an employee earns £600 per week, they’re entitled to 5.6 weeks × £600 = £3,360 annual holiday pay.

Each country has specific rules regarding how the calculation is made, especially for irregular hours or gig workers. Our Employer of Record solutions can help you ensure full compliance in over 85 countries.

Holiday pay entitlements and rules vary greatly by country:

United Kingdom

Employees are entitled to 28 days (5.6 weeks) of paid annual leave, including bank holidays.

Germany

Workers receive at least 20 days of paid leave (based on a 5-day workweek), but many employers offer more.

United States

There’s no federal requirement for paid holidays, but most employers offer 10–15 paid days off annually.

Philippines

Employees are entitled to holiday pay on official holidays, with premium rates applied for work during these days.

Check our country-specific hiring guides to learn more about holiday pay around the world.

Full-time employees

Typically entitled to full statutory or contractual holiday pay, based on working hours and length of service.

Part-time employees

Entitled to pro-rated holiday pay. For example, if working 3 out of 5 days, they receive 60% of their full entitlement.

Freelancers and gig workers

These workers typically don’t receive holiday pay unless specified in their contract. However, new EU regulations are beginning to reclassify some gig workers as employees.

Explore our Gig Pay solution to manage holiday entitlements and payouts for contractors.

Shift and zero-hours workers

Holiday pay is typically based on average earnings over a specified reference period (e.g., 12 weeks in the UK).

Typically entitled to full statutory or contractual holiday pay, based on working hours and length of service.

Part-time employees

Entitled to pro-rated holiday pay. For example, if working 3 out of 5 days, they receive 60% of their full entitlement.

Freelancers and gig workers

These workers typically don’t receive holiday pay unless specified in their contract. However, new EU regulations are beginning to reclassify some gig workers as employees.

Explore our Gig Pay solution to manage holiday entitlements and payouts for contractors.

Shift and zero-hours workers

Holiday pay is typically based on average earnings over a specified reference period (e.g., 12 weeks in the UK).

• Not including regular overtime or bonuses in calculations
• Failing to track the accrued holiday for leavers
• Assuming part-time employees don’t qualify
• Treating all countries the same; global teams need country-specific policies
• Underestimating public holiday entitlements in local jurisdictions

Here are some best practices for employers: 

• Track leave and accruals accurately: Use software to automate accruals and holiday balances, especially for international teams.
• Include all pay components: Factor in overtime, commissions, and variable pay when calculating average earnings.
• Align with local labour laws: Stay up to date with national employment laws — or partner with a compliance expert like Native Teams to handle the heavy lifting.
• Communicate policies clearly: Ensure employees understand their holiday pay rights from the outset, ideally outlined in the employment contract.

Discover how Native Teams helps businesses manage payroll and compliance worldwide. 

Holiday pay is a key component of payroll compliance. Mismanagement can lead to penalties, back payments, or disputes with employees. When managing global teams, it's essential to ensure that local laws are followed, particularly when processing terminations or maternity and sick leave.

Native Teams offers fully compliant payroll solutions, including holiday pay, tailored to the legal frameworks of over 85 countries.

• Holiday pay is the income employees receive while on leave.
• Laws and calculations vary by country and employee type.
• Getting it wrong can lead to legal and financial risks.
• Using automated payroll systems or global employment providers ensures accuracy and compliance.