Holiday pay for agency and temporary workers: how accrual actually works

Holiday pay for temporary and agency workers has a reputation for being confusing, and the reputation is fair — unlike a permanent employee working fixed hours, an agency worker's entitlement often has to be calculated fresh for genuinely irregular patterns, across changing assignments, sometimes with more than one hirer involved. Getting it wrong tends to surface exactly the way most pay errors do: quietly, on a payslip, at a moment when the worker has no context for why the figure looks off.

The basic entitlement

Like any worker, an agency worker is entitled to statutory annual leave — 5.6 weeks a year for someone working a standard pattern, pro-rated for shorter or irregular engagements. The complexity isn't really about the headline entitlement; it's about how that entitlement gets calculated and paid out for someone whose hours vary from week to week, or who moves between short assignments rather than holding one continuous role.

Rolled-up holiday pay and the 12.07% figure

For irregular-hours and part-year workers, current rules allow holiday pay to be rolled up — paid as an additional amount alongside regular pay, rather than paid out separately when the worker actually takes leave. The commonly used figure for this is 12.07%, which reflects the proportion of a working year that 5.6 weeks of statutory leave represents. Rolled-up holiday pay calculated this way needs to be shown as a clearly identified, separate amount on the payslip, paid at the same time as the pay it relates to — not folded invisibly into a single headline rate that leaves the worker unable to see it was ever paid at all.

Why this method isn't for everyone

It's worth being precise about scope here: rolled-up holiday pay of this kind is specifically for workers with irregular hours or part-year working patterns, under rules that took effect for leave years beginning on or after April 2024. It isn't a general-purpose method an agency can apply to any worker who happens to be temporary — a worker on a fixed, regular weekly pattern doesn't fall into the category this method is designed for, and applying it to them anyway is a common and avoidable error, not a harmless simplification.

Where this connects to the Key Information Document

However holiday pay is being handled for a given worker — rolled up, or accrued and paid separately when leave is taken — needs to be clearly reflected in the KID the worker was given before they started, not discovered for the first time on a payslip. A KID that's silent on holiday pay treatment, or vague about whether it's rolled up, leaves exactly the kind of gap that turns into a dispute the first time a worker tries to work out why a headline rate doesn't match what's landing in their account.

Multi-hirer and multi-assignment complications

A worker who moves between short assignments, potentially with different hirers through the same agency, still accrues a single, continuous holiday entitlement based on their overall working pattern with that agency — it doesn't reset with every new assignment. This is where a combined, accurate hours record across clients becomes essential rather than a nice-to-have: if each assignment is tracked in isolation, with no single place the worker's overall entitlement is reconciled, it becomes very easy to underpay or overpay holiday without anyone noticing until the worker does.

How this interacts with AWR pay parity

For a worker who's crossed the 12-week AWR qualifying threshold, holiday pay is one of the specific conditions that has to match what a comparable direct employee at the hirer would receive, alongside pay and other core working conditions covered by equal treatment. That means a worker's holiday pay treatment isn't necessarily static across the life of an assignment — it may need to change at the same point their pay does, once the qualifying period is met, which is easy to overlook if holiday pay is being tracked as a separate system from the rest of AWR compliance rather than as part of the same calculation.

A worked example

A worker takes a series of short assignments with the same agency across several months, working genuinely variable hours each week — some weeks full-time, some part-time, one week with no shifts at all. Rolled-up holiday pay at 12.07% is applied correctly each pay period, itemised clearly on the payslip. Four months in, the worker crosses the 12-week threshold with one particular hirer and becomes entitled to equal treatment, including holiday pay matching what a comparable direct employee at that hirer would receive. If the comparator's holiday entitlement is more generous than the standard statutory calculation the agency has been using, the rolled-up figure needs to increase from that point — an adjustment that's easy to miss if nobody is actively watching for the AWR threshold being crossed on that specific assignment.

Common mistakes worth watching for

• –Applying rolled-up holiday pay to a worker on a fixed, regular pattern, where it isn't the correct method.
• –Not itemising rolled-up holiday pay separately on the payslip, so the worker can't actually see it was paid.
• –Treating holiday accrual as resetting with every new short assignment, rather than continuous across a worker's overall engagement with the agency.
• –Missing the point at which AWR equal treatment changes what a worker's holiday pay should reflect, because it's tracked separately from the 12-week countdown.
• –Leaving the KID vague about holiday pay treatment, so the first real explanation the worker gets is an unexpected payslip figure.

The alternative: accrued holiday for workers with a regular pattern

For a worker on a fixed, regular assignment — the same days and hours each week, for example — holiday should generally be accrued in the conventional way and paid out when leave is actually taken, calculated with reference to the worker's normal pay over a defined reference period, rather than rolled up into each payslip. This matters because the two methods produce genuinely different outcomes in practice: a worker on a regular pattern who's been paid rolled-up holiday incorrectly may, in effect, have been discouraged from actually taking leave, since there's no separate payment associated with booking time off — which runs against the underlying purpose of the entitlement, not just its technical calculation.

A simple worked calculation

Take a worker on an irregular-hours arrangement who earns £480 in a given week. Rolled-up holiday pay for that week is calculated as 12.07% of that figure — roughly £58 — shown separately on the payslip alongside the £480 in ordinary pay, for a total gross figure of around £538. The following week, the same worker earns only £200 because of a quieter period; the rolled-up holiday pay for that week is correspondingly lower, around £24, because the calculation tracks actual earnings in the period rather than a fixed weekly amount. This is precisely why the method suits genuinely variable working patterns and doesn't suit a worker on fixed hours, where the fluctuation the calculation is designed to handle simply doesn't exist.

Why this is worth getting right proactively

Holiday pay disputes tend to be some of the more time-consuming ones to unwind after the fact, because they usually require reconstructing a worker's entire hours history to work out what should have accrued and been paid, rather than resolving a single, isolated figure. Getting the method right from the first payslip — the correct calculation, clearly itemised, consistent with what the KID promised — avoids that reconstruction exercise ever being necessary. This is exactly the kind of area worth checking against current gov.uk guidance directly when setting up a new payroll process, since holiday pay rules for irregular and part-year workers have changed materially in recent years and are worth confirming rather than assuming from memory of how it used to work.