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Managing Employee Leave - Holidays and Annual Leave

2020 and the pandemic have caused upheaval in many areas of business and one of these is the entitlement of employees to annual leave. As the lockdown restrictions are lifted and working life returns to normal, it is a good opportunity for employers to refresh their understanding of the legal position on paid holiday entitlement.

Under the Working Time Regulations 1998, every worker in the UK, whether full time, part-time, temporary, seasonal or casual, has the legal right to a minimum of 5.6 weeks' paid holidays in every holiday year (including public holidays). This is the equivalent of 28 days for a worker working 5 days per week. This includes any public or bank holidays which your business recognises.

The calculation of 5.6 weeks holiday is capped at 28 days, even if a worker works a 6-day week. This is a statutory minimum and your business may offer longer holidays to workers if you so wish. Part-time workers are entitled to holidays on a pro-rata basis.

The right to holidays also extends to agency 'temps' but not to workers who are genuinely self-employed. There is no minimum period of qualifying service required for a worker to become entitled to paid holidays. However, in the first year of employment only, workers can be required to accrue holidays before they are taken.

The contract of employment

Your holiday entitlement and holiday request procedure must be clearly outlined in the contract of employment.

This should include:

· the businesses holiday entitlement;

· details of the holiday year;

· whether any holidays can be carried over to the next holiday year;

· any shut-down periods for which employees must take holidays; or

· the procedure for employees to request holidays and to whom requests should be made.

Remember that it is your responsibility to ensure that your employees are taking their holidays. Apart from ensuring that you are complying with your legal obligations as an employer, ensuring that employees take their holidays allows you to plan your business, effectively ensuring that you have sufficient staff cover at busier times and that you are not overstaffed at quieter times.

Holiday Pay

Holiday pay should be paid at the worker's normal rate of pay and include bonuses and contractual variable payments (but not overtime payments unless contractually guaranteed). Where there is no set remuneration, it is calculated on the basis of an average of the worker's hourly rate of pay over the 52 working weeks up to the first day of the period of holiday leave in question, provided at least some work was done in that week. If no work was done in that week, for example, if the worker was on holiday or absent due to ill health, you should go back another week during which work was done.

The Regulations make clear that an employer cannot make a payment in lieu of holiday entitlement except in the following circumstances:

· Where your holiday entitlement is over and above the statutory minimum, a payment in lieu of holidays can be made for the entitlement over and above the 5.6 weeks; or

· upon the termination of employment.

When the contract of employment comes to an end, the employee or worker is entitled to be paid an amount equivalent to any outstanding holidays accrued up to the date of termination. Should that sum exceed the holidays taken, then the employee can be required to refund an amount equivalent to the overpayment if there is a provision in the contract of employment.

Relevant cases

There are three leading cases which are relevant in respect of holiday pay for workers/employees on sick leave. The first involves an employee who was off sick when his holidays fell and was held to be entitled to take additional time off to compensate him for 'lost' holiday.

Therefore, if an employee is off on sick leave prior to going on holiday or falls ill whilst on holiday, they should be regarded as on sick leave and should be allowed to take their holidays at an alternative time if they so wish.

However, the second case concerns employees who are on sick leave and request annual leave during this period. It was held that whilst an employee cannot be compelled to take holidays whilst off sick, should they choose to, it should be treated in the same way as any other employee requesting holidays. Therefore, subject to the above guidance, if an employee asks to take holidays during a period of sick leave, or falls ill during a holiday and requests that they be regarded as being on holiday rather than on sick leave, they should be allowed to do so. However, this should be clearly documented. If the employee has not made such a request in writing, their verbal request should be confirmed to them in writing in order to avoid any later dispute.

The final case deals with the vexed issue of whether an employee accrues holiday entitlement whilst on long term sick leave. Employees do continue to accrue holiday entitlement although the time period for which they are entitled to back-claim accrued holiday pay is limited.

However, the authorities suggest that an employee is entitled to take their accrued holidays (or be paid for such if their employment is terminated) for the period since their absence commenced. This includes any holidays accrued but not taken in this holiday year or previous holiday years, despite the fact that their sick leave may have begun several years ago.

Holiday Accrual During Absence

A worker continues to accrue their statutory minimum holiday entitlement as normal while absent from work due to sickness, however long the period of sickness lasts. A worker's statutory paid holiday entitlement is 5.6 weeks. ‘Statutory’ means legal entitlement. (This equates to 28 days for a worker working a five-day week). You can count any days off for public or bank holidays towards a worker's statutory holiday entitlement - but only as long as you pay them for that day off. The entitlement for part-time workers is calculated on a pro-rata basis. Depending on the terms of their employment contract, the absent employee may also accrue any additional contractual annual leave that they would normally be entitled to (any contractual entitlement over and above the 5.6 weeks statutory minimum).

Refusing Holidays and being told the employee still intends to take the leave

In some instances, you may need to refuse an annual leave request for a set time period. You should ensure - if you have set a maximum number of staff on holiday at any period - that this would still allow all employees to take holidays in the year.

As an example, an employee comes to you with a holiday request form one day before they want their 4-week holiday to start. You check the holiday rota and 3 people are off already (your maximum number in that period). The employee tells you they have already booked and paid for the 4-week cruise and will be going no matter what you say. So what do you do?

If at all possible, try and accommodate the late request for the sake of good employee relations.

Alternatively, invite the employee verbally into the office to discuss the request. A witness taking notes would be good practice. Ask the employee if they understand the holiday booking rules, the need to check the holiday rota and that holidays should only be booked and paid for once the company has authorised the holiday. Then inform the employee that the holiday request is not authorised and if they do take the leave, it will be classed as unauthorised and you are formally instructing them to attend work and not present as absence due to sickness without a doctor's note on day one and that the company would require them to attend Welfare meetings and Occupational Health reviews during this period.

Confirm that if they do not attend work, the company may class this as Gross Misconduct and follow the disciplinary procedure.

Once you have confirmed this to the employee, you need to issue them with a letter confirming this. It is best to give them this after the meeting by hand so they cannot say they did not receive it.


Should an employee advise you that they believe that a breach of the Regulations has occurred, whether formally or informally, you should give the matter due consideration under your grievance procedure.

Keeping Records

It is vital that you keep records of your employees' working hours and rest breaks. This should include copies of holiday request forms.