Managing annual leave: A guide for employers

Holidays should be relaxing. Unless, of course, you’re the person managing all the annual leave requests from employees! 

Calculating entitlements for different workers and ensuring everyone receives the statutory minimum paid leave can feel like an administrative feat.

In this post we’ll cover all the annual leave essentials you need to know about, so you can feel confident that you’re managing things compliantly.

Annual leave entitlement

Full-time workers

Full-time workers are entitled to a minimum of 5.6 weeks (28 days) paid annual leave each year.

This can include bank holidays. If you do include bank holidays in your allowance, this must be made clear in employment contracts.

Part-time workers

Part-time workers are entitled to a pro-rata proportion of the 5.6 week statutory minimum.For example, someone working 4 days a week will be entitled to 4/5ths of the 5.6 week minimum, which is equal to 22.4 days. (5.6 x 4 = 22.4)

Irregular hours

Employees and workers working irregular hours, such zero-hours workers, are also entitled to 5.6 weeks paid holiday.

Due to the irregular working patterns each week, you may need to estimate the leave entitlement by calculating the average hours or days worked each week over a set reference period such as 12 weeks.

Offering additional leave above the statutory minimum

Employers can choose to award staff above this minimum allowance. For example, some employers offer an additional day of leave for every year worked.

Calculating holiday pay

Workers with fixed hours

If working hours don’t change then holiday pay is calculated using their normal pay rate. For example, if the person is paid £500 for working a 37 hour week, when they are on holiday for a week they should be paid £500 holiday pay.

Workers with no fixed hours, e.g. zero-hours workers

Holiday pay here is calculated based on a worker’s average pay over the previous 52 weeks, only counting the weeks in which they were paid. For example, if they did not work any hours one week, count back an additional week so that your calculation is based only on weeks in which pay was received.

Holiday pay calculations and statutory pay

You should not include statutory pay i.e. sick pay or maternity pay, when calculating holiday pay. If a worker has been employed for less than 52 weeks, use the average pay rate for the full weeks they have worked.

Rolled-up holiday pay

The approach of rolled up holiday pay, (including an amount to account for holiday within the employee’s salary, then not paying them while they are on leave) is no longer lawful.

Holiday pay should only be paid for the period when annual leave is taken, therefore workers should be encouraged to take the statutory minimum.

Carrying over annual leave

Carrying over annual leave into the following leave year shouldn’t be encouraged, and the regulations restrict this to 1.6 weeks. This means that the remaining 4 weeks must be taken within the year. Untaken leave also can’t be replaced by payment in lieu.

It’s at the employer’s discretion whether carrying over holiday entitlement over the statutory minimum will be permitted. You might choose to adopt a ‘use it or lose it’ approach to encourage staff to use up their allowance within the annual leave year.

An important exception to this rule is when annual leave is not taken due to sick leave, maternity, paternity, shared parental or adoption leave. In this instance, the employee must be allowed to carry over their unused leave.

Managing annual leave requests

When requesting leave, workers should be asked to allow for a notice period that is at least twice as long as the period of leave they wish to take. For example, if they wish to take a week of leave, they should request this no later than two weeks before they wish to take it.

Employers can refuse a leave request but should provide a notice period equal to the period of leave requested. For instance, if a week of leave has been requested, they must refuse this at least one week ahead of the requested leave period.

Controlling when an employee takes leave

You can ask your staff to take leave at certain times to accommodate busier or quieter periods.

For example, if your business is closed over Christmas, you can request that staff take these days as annual leave.

Equally, if you’re typically very busy in the days leading up to Christmas, you can restrict staff from taking leave during this period. These restrictions should be documented in your employment policies.

Accruing annual leave

Employees accrue annual leave from the day they start working for you, including while they’re in their probationary period.

Each month an employee works with you they’ll accrue one-twelfth of their allowance. So, for a full-time worker entitled to 28 days holiday a year, they accrue 2.3 days per month.

Some employers only permit new employees to take holiday leave as they accrue it, known as an accrual system.

Alternatively, you can work out how much of your annual leave year remains when the employee joins, and work out the employee’s annual leave allowance for that year in proportion to how much of the annual leave year remains.

For example, say an employee joins one-quarter of the way through your annual leave year, they’ll be entitled to three-quarters of the full year allowance, i.e. 28 x 0.75= 21 days.

It’s also important to be aware that annual leave is still accrued when an employee is on sick leave or family leave, i.e. maternity/shared parental leave.

When should your annual leave year start?

An annual leave year is the time period within which employees are entitled to, and must use, their annual leave allocation.

One option is to start each employee’s holiday leave year on the day they start working for you. This saves you having to calculate how much of your annual leave year is left when they join. A big drawback with this is that everyone ends up with a different annual leave year, which can be a real headache to keep on top of, particularly as a business grows.

An easier option can be to run your annual leave year in line with the calendar year, so it restarts at the beginning of January. The downside with this option is that you can end up with lots of employee’s needing to use up their allowance around Christmas.

This might be fine if Christmas is generally a quieter time of the year for you, but if it’s your busiest period, you’re unlikely to want lots of your staff trying to use up their annual leave at the same time.

An alternative option is to run your annual leave year in line with the financial year, or another annual period of your choosing.

Whatever option you go for, you must notify your employee of this when they begin working for you; it should be stated within employment contracts.

Holiday pay on termination of employment

If an employee has not used up all the annual leave they have accrued in their final year working for you, payment in lieu of these days should be included in their final pay. This is the only time when you can offer payment in lieu of annual leave.

The reverse scenario is when an employee ends their employment having taken more annual leave than they have accrued for that year. For example, they leave halfway through your annual leave year, but have already used up three-quarters of their annual leave allowance.

In this case, you can deduct the pay for these extra days of leave from their final pay, provided you have given notice that you will do this in your employment contracts and that you also write to them to confirm the reason for a deduction of pay in advance of doing so.

Annual leave while on long term sick

Employees are entitled to take annual leave while off sick and they’ll most often do this when they want to receive full pay for that period as opposed to their sick pay entitlement.

It’s important to note that employers cannot force employees to take annual leave if they qualify for sick leave.

How HR Software can help with annual leave

Calculating holiday allowances for all your employees and keeping track of what everyone has used throughout the year can feel like a job in itself!

Fortunately, HR Software like ours can do the work for you! It’ll also help streamline the request and approval process. Employees can request annual leave through the software, their manager will be notified and can approve or decline the request at the click of a button, with approved leave being added to the employee calendar.

Other useful features for managing leave include:

• Calculating time off in lieu.

• Preventing resourcing issues as it’s easy to view who’s already booked time off.

• Automatic adjustment of holiday entitlements if you reward long service employees with additional holiday.

• A holiday accrual report that calculates the value of unused holiday at the end of the financial year.

The content of this blog is for general information only. Please don’t rely on it as legal or other professional advice as that is not what we intend.