Calculating annual leave entitlements and ensuring workers receive the correct holiday pay can be a real challenge for employers.
The purpose of annual leave
Annual leave enables workers to take paid time off work, to enable workers to be well-rested and to maintain their physical and mental health. So, it really is in the best interest of both your employees and your business to ensure your workers take their annual leave entitlement.
Statutory entitlement to annual leave
All workers (employees, workers, part timers, agency workers, zero hours contracts, casual staff and workers with irregular hours) have the right to 5.6 weeks’ statutory annual leave each year, irrespective of the hours they work. This equates to 28 days annual leave per year for someone working 5 days per week.
There is a useful annual leave calculator on the gov.uk website: link here
You can choose to offer above the statutory minimum entitlement. For example, many employers offer an extra day of leave for every year of service, up to a specific limit.
Public Holidays
There is no statutory entitlement to paid time off on public holidays. Instead, there is a legal right to a minimum of 5.6 weeks annual leave per year. Most employers choose to include public holidays within this 5.6 weeks’ entitlement, although there is no legal requirement to do so.
The employment agreement should state the workers’ entitlement to leave and whether this includes public holidays.
Calculating Holiday Pay
Workers should receive the same pay during annual leave that they would have received had they been at work.
It sounds simple, but can become a complex calculation for workers with irregular hours of work and pay. In these circumstances, you should look back at a worker’s previous 52 weeks of pay to determine the worker’s average earnings. The reference period should exclude any weeks that the worker didn’t work. Please contact me for more advise on how to make these calculations.
Accrual of annual leave
Workers will continue to accrue annual leave during most periods of absence including: sick leave; maternity leave; paternity leave; adoption leave; shared parental leave; and furlough leave.
Annual leave on termination of employment
On the termination of employment (including dismissals), workers will receive payment in lieu of holiday for any unused accrued leave. If a worker has taken more annual leave than they have accrued, employers can make a deduction from their final pay only if there is a relevant clause in the employment agreement or if the worker gives their written consent in advance.
Can workers carry over annual leave?
It is at the employers’ discretion to decide whether to allow workers to carry over any remaining leave entitlement (over and above the statutory four weeks) to the following leave year. Some employers choose to adopt a ‘use it or lose it’ approach to encourage workers to take their leave.
However, there are a few exceptions to the rule that most annual leave cannot carry over. If a worker has been unable to take their annual leave as they have been on some other form of leave, they can carry over some or all of their untaken leave to the following year. This applies where a worker has been on long term sick leave, maternity leave, paternity leave, shared parental leave or adoption leave.
Can I pay cash for annual leave?
Untaken statutory leave cannot be replaced by a payment in lieu, except on termination of employment.
Can an employer specify when annual leave will be taken?
Employers may specify when annual leave will be taken. For example, many employers close down over Christmas and New Year, and on bank holidays. This needs to be clearly communicated to workers, for example in the employment agreement or annual leave policy.
You will ideally provide as much notice as possible to enable workers to make arrangements. As a minimum, the notice period should be at least twice as long as the leave the worker is required to take.
You may also restrict when leave can be taken, for example during busy periods. Employers may specify that no leave at all will be approved, or may limit the number of workers that can be on leave. However, exceptional circumstances should always be taken into consideration.
Can an employer decline a leave request or cancel leave?
Employers may decline an annual leave request or cancel approved leave, if there are genuine business reasons to do so. Reasonable notice must be provided. As an absolute minimum you must give as much notice as the amount of leave requested, plus one day. For example, you should give 4 days’ notice if the worker has requested 3 days’ leave.
Cancelling a worker’s leave should only be considered where absolutely necessary, given the impact it is likely to have on the worker. Alternative options should first be explored.
What happens if a worker is sick while on annual leave?
A worker who is sick whilst on annual leave is entitled to transfer the holiday days when they were ill to a new holiday period when they return to work. Their absence should be treated as sick leave, with their usual entitlement to company sick pay or statutory sick pay. Workers must still follow any requirements of the company absence procedure, such as notification and providing a fit for work note (if applicable).
Tips for managing annual leave effectively
Annual leave planning – Careful planning is needed to ensure there aren’t too many people off at the same time, causing the business to be short staffed. Line managers should be aware of the work priorities for the year, and the likely peaks and troughs in workload.
Have a clear and transparent process for approving leave
Introduce an Annual Leave Policy which includes:
- Entitlement to annual leave and public holidays;
- Dates of the leave year;
- Any dates that are required to be taken as annual leave, such as Christmas shut downs or public holidays;
- Any dates when annual leave is not permitted;
- Whether leave can be carried over, and any restrictions that may apply;
- Any restrictions on the amount of leave that can be taken (for example, no more than two weeks’ leave), or on the number of staff that can be off at any one time;
- How to apply for leave and required notice;
- The process for approving leave – such as first come, first served; and
- Whether the worker will be required to work on public holidays and how they will be paid.
Place restrictions on the carry over of annual leave – The arrangements for carrying over leave should be specified in the employment agreement or employee handbook.