In a nutshell

The Working Time Regulations 1998 provide workers with the right to a minimum of 28 days annual leave (20 statutory days plus eight bank holidays), but this seemingly straightforward legal entitlement can raise a number of difficult issues for you as an employer.

Even though it is enshrined in law and the therapeutic benefits of a holiday are obvious to everyone, a recent Glassdoor Annual Leave Survey revealed that only 50% of respondents took their full entitlement of annual leave. The average worker lost 6.5 days leave each year; nearly 50% of respondents said they worked whilst on holiday; one in five said they had been contacted by a colleague whilst on holiday and 13% stated that their line manager had contacted them whilst on annual leave.

The challenge for you as an employer is to ensure that when your staff do take time off it is managed effectively.

What are the risks?

On a practical level, if a worker does not disengage from the demands of work there is the distinct possibility that performance at work may be affected for the worse. Legally, a long-hours culture creates pressure on your staff, which may lead to depression and a GP’s fit note citing 'stress'. This can lead to a disability discrimination claim and/or a personal injury claim. If an employer believes in putting work first, this can create an unhappy and unhealthy work environment. This could trigger liability under health and safety legislation. Mismanaging annual leave can also amount to a breach of contract, as well as an employee taking umbrage and claiming constructive dismissal. Given these risks, it is essential you have a positive attitude to annual leave entitlement and manage situations carefully.

Key steps to manage this issue

1. Be clear on holiday entitlement and related matters

You have a choice to make as an employer. Either give your staff the statutory annual leave entitlement of 28 days (pro-rata for part-time employees), or you can be more generous and exceed the statutory minimum. There is a school of thought that suggests that workers who are entitled to more annual leave than the statutory minimum are more likely to be far more positive towards their work and their employer.

When considering what annual leave entitlement to offer you also need to consider:

a) Are there any peak periods of activity in your business when you would not want your staff to take annual leave? Alternatively, are there any quiet periods when you would want your staff to take annual leave? If you are going to put restrictions on when staff can take annual leave it’s best to set this out in their contract of employment.

b) How much unused annual leave will you allow staff to carry over in to the next holiday year? Most companies allow a worker to carry over five to 10 days at the manager’s discretion.

c) Can unused annual leave be set-off against an employee’s notice period? You would need to consider the implications for pay if you go down this route.

d) Can an employee take annual leave for a particular religious reason? For example, a person wanting to celebrate Eid or Diwali should (subject to business need) be allowed to take that day as annual leave.

e) Should you impose a limit on the number of staff who can take annual leave at the same time?

f) Is the process for taking annual leave, giving notice and seeking approval from you the employer, clear?

These are matters where it may be necessary to take professional advice to ensure you’re following the law and doing what’s best for your organisation. Once you are clear on all the answers, everything related to the above points should be detailed in your staff’s contract of employment or as a policy in your staff handbook.

2. Make sure holiday pay is correct

This applies to the 20 days of the statutory entitlement (not the eight bank holidays). Your staff should receive the same pay whilst on holiday as they would if they were at work. Regular overtime must be included when calculating a worker’s statutory holiday pay entitlement, as should commission and any time for work-related travel (ie staff will be paid as normal for time spent travelling for work).

You can only pay an employee for unused annual leave when their employment ends.

There have been a number of prominent case rulings relating to holiday pay in recent years so, again, it may be prudent to get some specialist advice on these aspects.

3. Encourage staff to take their holidays during the leave year

A build-up of unused annual leave can cause problems for you and your staff. Your workers may feel they have too much work and feel that they literally don’t have the time to take a holiday. That can cause health problems, and lead to high levels of sickness related absence.

Alternatively, if the business is struggling staff may feel that taking annual leave could be a dangerous thing for them to do as it may jeopardise their job.

Line managers should monitor their team’s take up of annual leave and go further by encouraging them to take annual leave. Creating a culture where your staff feel comfortable taking annual leave (and not working while they are on leave) and are safe in the knowledge that is seen as a positive by their employer, is a true testament to the work/life philosophy.

You should set out in your employee's contracts how much annual leave (if any) they are allowed to carry over into the next holiday year. An employee has to have 28 days holiday in any one year (including bank holidays if your contract includes these days as holiday entitlement) so you cannot allow employees to carry over holiday if it means that they will not have taken their statutory entitlement. If, as a result of sickness, employees have been unable to use their annual leave during the holiday year, you can allow employees to carry over a maximum of 20 days (of their 28 days entitlement) into the next holiday year. There has been a lot of case law around the issue of sickness absence and holidays in recent years so it makes sense to contact an HR consultant or an employment lawyer if you're facing queries about carrying over annual leave. If an employee is on any type of parental leave (eg maternity leave) you should allow them to carry over some or all of the untaken leave into the next leave year; again this should be clearly laid out in their employment contract or staff handbook.

4. Be fair, consistent and transparent

Be fair by ensuring that requests for annual leave are considered on an objective basis. That means not favouring one employee’s request over another, because of a personal reason.

Be consistent by treating each request for annual leave on a case by case basis and balancing the worker’s right to annual leave against the needs of your business. It doesn’t matter whether the person asking is full-time, part-time or wants annual leave for a particular reason, you need to consider each request in the same way.

Be transparent by having a policy on annual leave that is clear and accessible, and at the same time be ready and willing to explain your reasons for turning down a request for annual leave.

5. Follow our dos and don’ts

  • Do make your holiday policy accessible to all staff.
  • Do encourage your line managers to monitor the take up of annual leave (and to take leave themselves).
  • Do set a good example by taking leave yourself.
  • Do periodically remind staff how much annual leave entitlement they have outstanding.
  • Do review whether your staff have taken, or intend to take a holiday; it can help to use an automated system to help you keep track of each member of staff’s use of annual leave.
  • Don’t assume it is up to each worker to monitor their own amount of annual leave.
  • Don’t automatically pay an employee for unused annual leave, or because the employee is happy for you to pay them in lieu.
  • Don’t contact an employee when they are on holiday.
  • Don’t make staff feel guilty about taking annual leave.

Tools and resources

Download our checklist on analysing your organisation’s annual leave policy to ensure it is effective for your organisation.

Legal disclaimer

The materials on this site are for guidance only and do not constitute legal or other professional advice. You should consult your professional adviser for legal or other advice.

The CIPD is not liable for any damages arising in contract, tort or otherwise from the use of or inability to use this site or any material contained in it, or from any action or decision taken as a result of using the site.

This site offers links to other sites thereby enabling you to leave this site and go directly to the linked site. The CIPD is not responsible for the content of any linked site or any link in a linked site and the inclusion of a link does not imply that the CIPD endorses or has approved the linked site.