Last reviewed 29 July 2015
As we embark on holiday time, Kathy Daniels of Kathy Daniels Consulting Ltd takes an opportunity to reflect on the law relating to annual leave.
Amount of leave
The law relating to annual leave is contained within the Working Time Regulations 1998. These Regulations set out that a full-time employee is entitled to a minimum of 28 paid days of annual leave. This can include the eight public holidays that individuals are entitled to in the UK.
A part-time employee is entitled to receive a pro-rata amount of this leave. Simply calculate the percentage of full-time hours that a part-time employee works and apply that percentage to the 28 days.
Accruing annual leave
An employee accrues annual leave. This means that an employee who is absent due to sickness continues to accrue leave, as does a woman who is on maternity leave. It can be useful to let the employee take any accrued leave before returning to work, to reduce any disruption.
If an employee is paid the same amount each month then they continue to be paid in the normal way when they are on annual leave. However, if an employee is paid a variable amount of pay (maybe because the employee is entitled to a bonus, commission, overtime or other allowances) the requirement is to take an average of the 12 weeks’ pay prior to the annual leave and to pay that amount.
In the cases of Bear Scotland Ltd and others v Fulton and others , Hertel (UK) Ltd v Woods and others  and Amec Group Ltd v Law and others  it was confirmed that non-guaranteed overtime should be taken into consideration when calculating the amount that workers should be paid when taking annual leave. In addition, any allowances that relate to the work the worker is doing should be taken into account.
In the case of Lock v British Gas Trading Ltd  it was confirmed that commission should be included when calculating the amount of annual leave to be paid.
Rolled-up holiday pay
Rolled-up holiday pay was an approach that a number of employers adopted but is no longer allowed. This approach involved employers paying a “holiday allowance” as part of the employee’s salary, but then paying no money to the employee when they actually took leave. This approach was seen to discourage employees from taking their annual leave and so is no longer allowed.
Working on public holidays
There is no requirement to give employees time off on public holidays. Indeed, it is not possible to do this in the many organisations that have to operate every day of the week. If an employee is required to work on a public holiday, there is no legal requirement to pay a premium for this work, although many employers do. If you have set out in the employee’s contract that additional payments will be made this must be honoured.
You must specify to your employees what the holiday year is. For most employers this will be the calendar year or the financial year that the employer works to. If you do not specify the holiday year it will be:
from the first day of the new job (if the employee started work after 1 October 1998)
from 1 October (if the employee started work on or before 1 October 1998).
The holiday year is both the period of time that holiday entitlement is accrued and the time during which that entitlement must be taken.
Leave entitlement for new starters
Employees start to accrue entitlement to annual leave as soon as they start employment. The amount that an employee has accrued can be calculated by taking a percentage of the year that the employee has worked. A full-time employee entitled to the statutory minimum (28 days) will accrue 2.33 days per month.
Payments to leavers
If an employee leaves during the holiday year, you should calculate both the entitlement that has been accrued during that holiday year and the amount of annual leave that has been taken.
When the employee has taken more leave than they have accrued, calculate the value of the additional holiday days and deduct these from the final salary payment. Ensure that the amount you have deducted is specified on the pay statement.
When the employee has not taken all of the leave that they have accrued you must calculate the value of the outstanding leave and add that to the final salary payment.
Carrying forward untaken leave
The Working Time Regulations 1998 do not specify that annual leave can be carried forward. This is because the purpose of the law is to ensure that employees take sufficient rest, and not taking their annual leave is not achieving this. You should aim, therefore, for employees to take all their leave within the leave year.
However, situations do arise when leave cannot be taken and if this occurs you could allow employees to carry forward their leave. Specify in your annual leave policy how long you will allow the leave to be carried forward, and specify a maximum amount of leave that you will allow to be carried forward.
Of course, an employee who is absent due to sickness or maternity leave is not able to take leave and would have to be allowed to carry it forward. There is no clear guidance in law on how long the leave should be carried forward.
Sickness and annual leave
Case law has been very clear that an employee cannot take annual leave and sick leave at the same time because the purposes of the leave are different. If you have an employee who has booked annual leave and is unwell when that leave is due to start, the leave would convert to sick leave. The employee would then be able to take their annual leave at a later date.
This does mean that an employee could become unwell while on annual leave and then take sick leave instead. However, you can insist that your usual sick leave rules apply. Most employers require their employees to inform them that they are unwell and hence unable to work within a specified number of hours of their usual start time. You could insist that these rules are still followed, even if an employee is on annual leave. Your usual reasonableness would apply — if an employee was not able to inform you within the specified time they would be required to inform you as soon as is reasonably possible.
An employee is required to give notice that is twice as long as the holiday they want to take. So, if they want to take one week’s leave they should give at least two weeks’ notice. You are required to give the same notice if you refuse annual leave. You can require employees to give more notice than this, but if so you must include this requirement in their contract of employment.
Fixed periods of leave
You can insist that your employees take leave at specified times (eg over Christmas or during a factory shutdown). If you want to do this, include it in your contracts of employment.