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There’s so much to think about when you take on a new employee. From pension enrolment to sick pay, salary to benefits in kind and more, you’ll also need to think about how much annual leave your employees will be entitled to.

The fact is, to keep your team productive and happy, they need to have had plenty of time off to rest and recharge. As an employer, sticking to the regulations that govern holiday entitlement is not only a legal obligation but also an important way of fostering a healthy work-life balance and promoting employee wellbeing.

What is holiday entitlement?

Holiday entitlement, often referred to as annual leave, represents the amount of paid time off that an employee is entitled to receive from you as their employer. It means that employees can take a break from work, relax, spend time with family, travel or do whatever it is they need to do away from work. It forms an important part of a healthy workplace culture and helps to avoid burnout.

In the UK, holiday entitlement is governed by legislation that is really clear about the amount of paid time off employees should get each year.

What is the minimum amount of paid holiday I need to give?

The statutory (or minimum) entitlement to paid holiday is outlined in the Working Time Regulations 1998.

Full-time employees are entitled to a minimum of 28 days of paid leave per year, including public holidays.

 
This entitlement can be pro-rated for part-time employees based on their contracted hours, so calculating holiday entitlement for part-time employees involves working out the proportion of their working hours in relation to those of a full-time employee.

It’s worth knowing that while the statutory minimum holiday entitlement is 28 days, this may vary depending on the terms of the employment contract.

So, you might decide to offer additional holiday days as part of your employees’ benefits package, meaning they get more than the statutory minimum. However, as an employer you’re not allowed to provide less than the minimum set out by law. You might also decide to allow employees to take a longer unpaid break known as a sabbatical, after which they return to work as normal.
 

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What should I pay an employee while they are on holiday?

If an employee has fixed working hours, you should pay them holiday pay at their usual weekly rate. However, if their hours are different from week to week, you will need to pay them holiday pay based on the average pay that they earned over the past 12 weeks.

How does accrual of holiday entitlement work?

Holiday entitlement typically accrues throughout the year, allowing employees to build up their allocated leave over time. The accrual process means that employees have enough paid time off available when they choose to take a holiday.

In most cases, holiday entitlement accrues monthly or with each pay period, so that employees can plan and schedule their time off in advance.

As their employer, you may decide to draw up your own specific policies around how your team should accrue and use their holiday. For example, you might want to strongly discourage any holiday leave during especially busy times of the year, or say that at least a week’s notice must be given if an employee wants to take some leave.

Just make sure that the policies and procedures you have in place are clearly documented and accessible to ensure compliance and avoid misunderstandings. As a good employer, you want to be totally transparent and fair at all times.

Can an employee carry over holiday leave?

Rest and relaxation are so important for both physical and mental health. It’s a good idea to encourage your employees to have time off whenever possible, and take all of their leave allowance within the holiday year.

That said, sometimes employees may be unable to take all of their accrued leave within the designated period. Where this is the case, you will need to have a policy that allows them to carry some of their leave over to the next year.

Bear in mind though, that it may be important to understand why they haven’t managed to use up their leave.

 
Are they overworked or unhappy in some way? Is there a staff shortage in their area of the business? It may not simply be a case of ‘forgetting’ to take holiday, but something more operational that needs looking at.

Basically, it’s up to you as an employer to decide how much annual leave your employee can carry over. But as a side note, keep an eye on any member of your team who seems to regularly have too much left at the end of the year or who seems reluctant to take it as there may be an underlying cause.

Can employers make payment in lieu of holiday?

In situations where an employee leaves their job before they’ve used all of their accrued holiday leave, they may be entitled to payment in lieu of the unused leave. Payment in lieu of holiday is calculated based on the employee’s normal rate of pay and the number of untaken holiday days.

Contractual agreements may stipulate specific terms regarding payment for untaken leave if your employee’s contract is ever terminated.

What about public holidays?

While there is no legal requirement for employers to make any additional payments for working on a bank holiday, many will offer enhanced rates of pay or alternative arrangements as part of their employment terms.

Again, make sure your policies regarding public holidays are really clear so you can avoid any ambiguity, and so that employees understand their entitlements. Clear communication and transparency around holiday entitlement can all add to a positive employer-employee relationship and a more supportive work environment.

Learn more about our online accounting services for businesses. Call 020 3355 4047 to chat to the team, and get an instant online quote.

About The Author

Lisa Hinton-Hill

I've worked in the accountancy sector for more than 15 years, and have extensive experience supporting sole traders, partnerships, and SME's. Learn more about Lisa.

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