Some annual leave myths dispelled

Do employees automatically have the right to carry over untaken annual leave into the following leave year? Is there a ban on rolled-up holiday pay? As we head into the summer holiday season in the UK, Stephen Simpson rounds up some common misconceptions around paid annual leave entitlement.

Myth 1: Employers must allow workers to cancel annual leave if holiday plans change

What are the employer’s options if a worker asks to cancel annual leave that they have already booked? For example, it could be that a worker cancels a trip to the US this summer in response to concerns over the political situation over there.

Employers do not have to agree to a worker’s request to cancel holiday already booked, unless the worker has the right to cancel annual leave under their contract of employment or another relevant agreement.

In deciding whether to agree to a cancellation request, the employer can take account of the needs of the business, and the worker’s personal circumstances.

It may be good workforce relations to be flexible with annual leave requests. Indeed, employers that are particularly busy over the summer may welcome annual leave cancellations.

However, some employers could benefit from refusing to cancel leave already booked, particularly if there is less work for the worker to do in the summer or they are concerned about a build-up of untaken annual leave later in the year.

Myth 2: There is nothing a worker can do if they fall ill during or just before a period of holiday

Case law has established that a worker who is sick or injured during a period of previously scheduled annual leave must be allowed to take that annual leave at another time.

This is because the two types of leave have different purposes. Annual leave is to allow the worker a period of rest, relaxation and leisure, while sickness absence is for the worker to recover from an illness or injury.

Employers should ensure that their sickness absence policy includes a strict process for a worker in this situation to switch from holiday to sickness absence and take their annual leave later. This could include requiring the worker to:

• Provide medical evidence; and
• Make a written request to switch from holiday to sickness absence.

Myth 3: Employers must allow workers to carry over annual leave into the following leave year, whatever the reason holiday is untaken

There is no strict requirement for employers to allow workers to carry over any accrued but untaken holiday into the following leave year. In other words, employers that give the worker a reasonable opportunity to take holiday can adopt a “use it or lose it” approach to annual leave.

However, it is a good idea for employers to:

• Inform workers that any untaken leave that cannot be carried forward will be lost at the end of the leave year; and
• Allow line managers some flexibility to agree with any staff who find that they have not taken all of their holiday to carry over some untaken annual leave (for example, up to one week).

In any event, there are exceptions whereby employers must allow workers to carry over annual leave. The most common likely scenarios are where sickness absence or maternity leave have prevented the worker from taking their annual leave.

Myth 4: Employers can buy out workers’ annual leave entitlement

Especially in difficult economic times, some employers may be tempted to offer workers extra pay in return for giving up their statutory annual leave entitlement. Indeed, some workers who could do with the extra money may welcome this.

However, employers should be aware that it is unlawful for them to pay workers in lieu of their minimum statutory holiday entitlement. The only exception to this is on termination of employment, when employers can include in payments on termination an amount that represents any accrued but untaken annual leave at the date of termination.

Many employers do operate schemes to allow workers to buy and sell holiday. Around one-fifth of respondents to our 2024 annual leave research reported that they allow their employees to sell holiday, most commonly up to a maximum of five days per leave year.

However, employers need to ensure that their rules around workers selling holiday are watertight. Employers must be particularly careful that workers are not allowed to sell so much holiday that they end up taking less than the statutory minimum, which would breach the Working Time Regulations 1998.

Myth 5: Rolled-up holiday pay is banned

It is true that rolling up holiday pay – the practice of paying an additional amount representing holiday pay for each pay period throughout the year, instead of paying holiday pay at the time annual leave is taken – was unlawful for many years.

However, specific legislation was introduced for holiday years beginning on or after 1 April 2024 that permits rolled-up holiday pay for workers who fall within the definition of irregular hours or part-year workers.

An employer that chooses to use rolled-up holiday pay for irregular hours or part-year workers must calculate it at a minimum rate of 12.07% of the worker’s earnings during the pay period.

It remains unlawful for employers to pay rolled-up holiday pay to other workers.