An effective and compliant annual leave policy is essential for all employers. It serves to not only provide important guidelines for employees but also ensures businesses adhere to their statutory obligations around annual leave. If you’re creating or updating your annual leave policy, there are several critical areas that you must cover.
In this blog, we share five key elements you should be including in your annual leave policy. From how your employees should book their annual leave to guidance on carrying over annual leave, these essential components make for a clear and transparent annual leave policy.
Statutory entitlement
The starting point for any annual leave policy is to ensure compliance with the statutory minimum leave requirements. Under the Working Time Regulations 1998, full-time employees are entitled to 5.6 weeks paid holiday per year, which equates to 28 days for someone working a five-day week. This entitlement can include public holidays, although employers are not required to offer these as additional leave days.
If an employee works part-time, their holiday entitlement should be calculated on a pro-rata basis. For example, an employee working three days a week would be entitled to 16.8 days of leave (5.6 weeks multiplied by three days per week). It’s important that your policy clearly outlines how leave entitlement is calculated for different working patterns.
Public and bank holidays
There are usually eight public holidays (bank holidays) per year. Your policy should clearly state whether these are included within the statutory 28 days holiday entitlement or offering as additional days off. Many businesses offer these as paid days in addition to the statutory entitlement, but this is at the employer’s discretion. As we have seen in recent years with additional bank holidays for various reasons, it’s essential to have clear wording in your policy.
Carrying over annual leave
A well-structured annual leave policy should specify whether employees can carry over any unused annual leave into the next holiday year. Under UK law, annual leave can be carried over, but only under certain conditions. For example when an employee has been absent from work due to long term sickness or maternity leave which has prevented them from taking their annual leave. Aside from those exceptions, employers may choose to allow their employees to carry over some or all of any remaining entitlement at the end of the holiday year as a goodwill gesture or to manage busy periods.
It’s important to be clear about any restrictions or deadlines for taking carried-over leave. For example, some companies may stipulate that carried-over days must be used within the first three months of the new leave year. If you’re permitting any form of annual leave carry over as a one off then it’s good practice to confirm the agreed arrangements in writing.
Booking and approving leave
An efficient and transparent process for requesting and approving leave is crucial for minimising disputes and ensuring business continuity. Your policy should include:
- Notice periods for booking leave, typically a minimum of twice the length of the leave being requested. For example, for a two-week holiday, the notice should be at least four weeks.
- Approval processes for annual leave requests, such as whether these are managed by line managers, HR, or another department and what system is used for booking. Will it be a paper form, an email or via HR software?
- Clear communication about how approval will be given, including how conflicts in leave requests will be managed, especially during peak periods like summer holidays or the Christmas break.
In the event that staff are not taking their annual leave, an employer can request that they take time off in order to benefit from the rest away from work. Legally an employer must give a minimum of twice the length of notice for the period of leave they want the employee to take off. For example, if they want the employee to take a week off, two weeks’ notice must be given. Some businesses will close between Christmas and New Year, or for particular religious festivals, and employees should be aware well in advance if these days are to be saved and taken from their holiday entitlement.
Similarly, a business may have peak periods during which they don’t grant any holiday requests. This should be clearly communicated to staff and documented in their contract and the annual leave policy. A clear set of rules will help employees understand when and how they can take time off, as well as any notice requirements.
Holiday pay calculations
Your annual leave policy should detail how holiday pay is calculated. For most employees, holiday pay should be the same as their normal rate of pay. This includes regular overtime and commissions, following recent UK court rulings. For example, if an employee normally earns £400 per week, their holiday pay should reflect this figure. Particular care should be taken when calculating holiday pay for employees with irregular working hours. Further guidance can be found on the gov.co.uk website.
Learn how HRX can help
A well-defined annual leave policy and processes are crucial for compliance and employee satisfaction. Our HR system is designed to manage the full annual leave process so that it’s streamlined and gives employees and employers visibility on current holiday entitlement, bookings, and any adjustments.
You can try our software out for yourself by signing up for a FREE 30 day trial. Alternatively, you can book a FREE demo with one of our experts.
