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Annual Leave Overview

Annual Leave Overview

Overview

The right to annual leave is set out in the Working Time Regulations 1998 (‘WTR’) and entitles all employees to a minimum amount of paid time off work in each leave year.

From April 2009, the minimum annual leave entitlement for a full-time employee (an employee working 5 or more days each week) is 5.6 weeks, or 28 days. This is broken down in the WTR as a basic entitlement of 4 weeks entitlement and an additional entitlement of 1.6 weeks which represents the 8 public holidays in England and Wales each year. This means, in practice, that an employee has 4 weeks of entitlement which they can choose when to use and 1.6 weeks which will be taken on the public holidays each leave year.

This entitlement begins immediately when an employee commences employment and there is no requirement to hold a minimum amount of continuous employment before the full entitlement becomes available.

A leave year will normally run from the start of January to the end of December each year, however, a company has the option of choosing when the leave year begins. Some businesses decide that following the financial year is more suitable for them and therefore have a leave year which runs from the beginning of April to the end of March.

An employee is normally required to seek permission from their employer before they can take annual leave and their request must be approved. Employers can reject requests for various reasons, including a lack of cover during the period of annual leave being requested.

Full-Time Employees

Annual leave is normally straightforward when it comes to full-time employees. Each leave year they are entitled to the full minimum entitlement. When they take a day of annual leave, they lose a full day from their entitlement in that leave year.

Part-Time Employees

Part-time employees’ entitlement can seem complicated at first, but it is largely straightforward. The key is to focus only on the number of days that the employee works. If an employee works 5 days a week, but only 4 hours each day, their holiday entitlement is still calculated on the basis of their days worked. Therefore, in those circumstances, the employee would still be entitled to 28 days each leave year, although for each day off they would only be paid for the four hours they would have worked. The entitlement only changes where a part-time employee does not work 5 or more days each week. The entitlement reduces, based on the WTR minimum, as follows:

  • For an employee working 4 days a week, their entitlement is 22.4 days each leave year
  • For an employee working 3 days a week, their entitlement is 16.8 days each leave year
  • For an employee working 2 days a week, their entitlement is 11.2 days each leave year
  • For an employee working 1 day a week, their entitlement is 5.6 days each leave year

You will normally find that it is easier to round these entitlements to the nearest half day. Note that when doing so, you must round up as to round down would bring the entitlement below the statutory minimum.

As with full-time employees, when a part time employee takes a day of annual leave, they lose a full day from their entitlement.

Variable or Zero Hours Employees/Workers

Entitlement becomes slightly more complicated when it comes to workers that do not work regular hours or days each week.

By using the statutory minimum entitlement for a full-time employee of 28 days, a worker working atypical hours can be said to be entitled to annual leave equating to 12.07% of the hours that they have worked during the leave year.

The government has created an annual leave calculator which can be found on the government website and which, for now, represents the best tool to use to make these calculations.

Atypical workers annual leave entitlement is often far from straightforward, and we would recommend seeking assistance from our trusted advisers if you are unsure.

Public Holidays

As detailed above, employees have a legal right to 1.6 weeks of leave for the public holidays in England and Wales. Most businesses will not trade on those public holidays meaning the position is simple. When an employee does not work a public holiday and it would have been a normal working day from them otherwise, it is taken as a day of annual leave, and they lose a day from their entitlement.

The situation is also largely straightforward where an employee is required to work on a public holiday. In these circumstances, the employee keeps their day of annual leave that would have otherwise been taken and they are then free to use that day of annual leave at another time during the leave year. Note that in circumstances where a public holiday falls late in the year, such as Christmas Day or Boxing Day, an employee may not have time to take the extra day of annual leave before the leave year ends. This may mean that the employee should be allowed to carry the day over. This article explores carrying over annual leave below.

It becomes slightly more complex where an employee would not normally work on a bank holiday, such as a part-time employee that only works Tuesdays to Fridays. The easiest way to resolve this issue is to calculate a part-time employee’s entitlement inclusive of public holidays, rather than breaking the entitlement down into two parts. When done this way, the employee loses a day from their entitlement if they do not work a public holiday that falls on a normal working day for them, and nothing happens when a public holiday falls on a day they wouldn’t have worked.

Starting/Leaving Part Way Through a Leave Year

Where an employee starts or leaves part way through a leave year, their entitlement must be calculated on a pro-rata basis dependent on how long is left in the year, or how much of the year has passed.

There are calculations that can be made in these circumstances, however, the government holiday calculator allows these calculations to be made in a straightforward way, provided the employee is only entitled to the statutory minimum entitlement.

Note that when making these calculations, leave cannot be rounded down as this would fall foul of the statutory minimum.

Where an employee leaves part way through a leave year and they have taken less leave than they have accrued at the point of leaving, they are entitled to a payment alongside their final salary for any days accrued but not taken. Alternatively, if an employee has taken more entitlement than they have accrued at the point of leaving, it is likely that the employer can make a deduction from any final salary equivalent to the extra days taken.

Taking Annual Leave

An employee or worker must give notice to take annual leave. The WTR sets out that they should give notice that is at least twice as many days in advance as the number of days they wish to take, so if the employee wishes to take 2 days of annual leave, they should give a minimum of 4 days’ notice. This is a good starting point, but most employers will set out their own notice requirements in their contracts of employment, staff handbook or annual leave policy, provided these statutory minimums are adhered to.

It is also possible for an employer to ask an employee to take annual leave on a certain date. In those circumstances, the notice requirements are the same as above, twice as many days as the leave that you are asking the employee to take.

It is also possible for employers to set a limit on the maximum number of days that an employee can take in one go. This is normally two weeks but can be amended from employer to employer. Note though that it would be difficult as an employer to justify making that limit less than two weeks.

Carrying Over Annual Leave

The standard position in relation to carrying over annual leave is that an employee has no automatic right to do so. Therefore, if an employee has left over entitlement at the end of a leave year, it is generally lost.

It is important to note two things though. Firstly, recent case law has indicated that there is an expectation that an employer should remind their employees throughout the year of any remaining entitlement that they have. If an employer fails to do so, it could allow the employee to make a successful argument that any left-over entitlement they were not aware of should be carried over. It is therefore recommended, particularly when heading into the last third of the leave year, to check over your employees’ leave entitlement and to remind each employee of their remaining entitlement, especially if an employee has a considerable amount left.

Secondly, there are exceptions to the standard position. If there are circumstances which preclude an employee from taking some or all of their annual leave during the leave year, for example because of sickness or some other extended leave, such as maternity leave, the employee should be allowed to carry over any untaken leave at the end of the leave year. Further, if an employee regularly requests annual leave but has the majority of their requests rejected by the employer, this is likely to also give the employee the right to carry over.

If an employee does carry over leave, case law dictates that they should be given a minimum of 18 months to take the carried over leave. Whilst this may seem an extended period, you will find that it assists in limiting the disruption that the additional leave brings if it is spread over a longer period of time.

Holiday Pay

For full-time or part-time employees with a set salary, whether annual or hourly, and no additional payments received, holiday pay is straightforward. They are simply paid their normal salary for any days of annual leave.

For employees working variable hours, when they take a day or week of annual leave, they should be paid an average of their earnings over a previous period. That period is 52 weeks, or where an employee has not been employed for that long, as far back as possible. Weeks where the employee does not work any hours should not be counted and the period should go back a further week. This should continue to happen until you reach a maximum of 104 weeks if necessary.

Employees that work regular paid overtime and employees who earn commission should be given credit for these additional earnings when they take annual leave. This is because employees should not be punished for taking annual leave and those earning regular additional income would be financially worse off if they were not credited for those earnings when taking annual leave.

As a result, when an employee with additional earnings takes annual leave, they should be paid an average of their earnings, including any payment for overtime or commission, over the previous 52 weeks. As above, any weeks not worked should be skipped.

As you will note from this article, whilst annual leave can be straightforward in certain circumstances, there are a number of more complex areas that can be tricky to understand and even harder to implement. Getting annual leave right is imperative as a failure to do so is likely to give your employees claims for breaches of the WTR and their contracts of employment, which can be costly.

With the above in mind, we would highly recommend having trusted advisers in your corner to help you. Wilford Smith’s business focussed services specialise in Employment Law, Commercial Law, Company Law, Commercial Conveyancing and Regulatory and Criminal Investigations.

We can be your trusted adviser in all areas.

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