Rolled-up holiday pay for agency temps: when 12.07% is lawful and when it stops being enough

Most temp desks pay holiday as a percentage on top of each week's pay, because temps come and go and nobody wants to track leave balances for a worker who may be gone in a month. Since leave years beginning on or after 1 April 2024, that has been lawful for some workers. It has never been lawful for all of them, and for agency workers there is a second limit that the general guidance does not spell out: the Agency Workers Regulations.

What the law allows

Regulation 16A of the Working Time Regulations 1998 says holiday pay "may be paid by way of a 12.07% uplift to the worker's remuneration for work done". Three conditions come with it:

• It must be paid at the same time as the pay for the work, not saved up and paid later.
• The payslip must show the amount of holiday pay for that period as its own line.
• The 12.07% is worked on all the pay that counts towards a week's pay for holiday purposes, so regular overtime and commission tied to the work go in, not just the basic rate.

The figure comes from 5.6 weeks of statutory leave divided by the 46.4 weeks left in the year to work. GOV.UK gives the arithmetic: on total pay of £460 in a period, rolled-up holiday pay is £55.52.

Which temps it covers

The rule applies only to irregular hours workers and part-year workers. GOV.UK defines an irregular hours worker as one whose paid hours in each pay period are, "under the terms of their contract, wholly or mostly variable". A part-year worker is one required to work only part of the year, with unpaid gaps of at least a week.

The test is the contract, not what happened. For an employment business the relevant contract is usually the temp's terms of engagement with you. A temp engaged on assignment-by-assignment terms with no guaranteed hours will normally fall inside the definition. A temp whose terms with you guarantee 37.5 hours a week for the length of the assignment may not, even if they only stay six weeks, and for that worker holiday pay is due when the leave is taken. Read your own terms before you assume every temp qualifies.

The government guidance says agency workers come under the accrual method when they meet both the definition of a worker and one of the two definitions above, and that an employer of agency workers using rolled-up holiday pay must say so in the worker's Key Information Document. Our Key Information Document template has a line for holiday and how it is paid.

The twelve-week problem

From week thirteen of an assignment, regulation 5 of the Agency Workers Regulations entitles the temp to the same basic working conditions as a direct recruit, and regulation 6(1) lists annual leave among them. The 12.07% rate is built on 5.6 weeks. If the hirer gives its own staff more, 12.07% no longer matches.

Here is the sum for a temp on the National Living Wage of £12.71 an hour, working 37.5 hours:

Over weeks 13 to 26 of the assignment that is £164.64 for one worker. Across a desk of twenty such temps it is over £3,000 a quarter, and an AWR claim would ask for it back.

Regulation 16A covers the statutory leave only. How the extra contractual leave is paid is a matter for your terms and the comparator's, so take advice on the method. The point for the desk is that the uplift has to be checked against the hirer's leave at week twelve, alongside pay. The 12-week rule calculator shows when that date falls; ask the hirer for its holiday entitlement at the same time as its pay rates.

Two smaller points

Sick leave and family leave. A temp paid rolled-up holiday pay who goes on sick leave or statutory leave still accrues holiday. Regulation 16A says you then pay, each pay period, the average holiday pay they received over the previous 52 weeks, or over the shorter time they have been paid this way.

Pricing. The uplift is a cost on every hour, and so is the employer National Insurance charged on it. If the rate rises to 14.54% at week thirteen, the charge rate should rise with it. The temp margin calculator shows what each change does to the margin.

A check to run this week

1. Pull the terms of engagement for every live temp and note whether they guarantee hours.
2. For any that do, stop the uplift, pay holiday when it is taken, and take advice on leave already paid this way.
3. Confirm each Key Information Document says holiday is rolled up.
4. Check one payslip per payroll run shows holiday pay as its own line.
5. For every temp past twelve weeks, compare 12.07% with the rate that matches the hirer's leave.

Overlyft can set up an AI assistant to prepare this list from your timesheets and assignment records, flag temps reaching week ten and draft the request to the hirer for its leave entitlement. The decision on each worker's holiday rate, and anything you pay, stays with you. This page is general information, not legal advice.