Pay-as-you-go annual holiday pay is where an employee receives their holiday pay (calculated at a minimum of 8% of the gross earnings) added on top of and paid with their regular pay.

Under the Holidays Act 2003, an employee can be paid their holiday pay in this manner in one of the following two situations only:

1. The employee is on a genuine fixed term employment agreement of less than 12 months; or

2. The employees work pattern can be described as so irregular or infrequent that the concept of four weeks away from work is difficult to apply. For example, when an employee is only called into work to cover shifts as and when required - there is no defining event that would predict when the employee would be working.

If an employee does not fit into one of the above situations, then they will receive their four week annual holiday entitlement regardless of any amount that has already been paid.

The agreement for pay-as-you-go holiday pay must be written into the employee's employment agreement and the holiday pay itself must be an identifiable component of the employee's pay. On the termination of the employment relationship, no additional pay for annual holidays is due as the holiday pay has already been paid to the employee.

Further information on the pay-as-you-go holiday provision