Law guide: Employment

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Annual leave

Annual leave

Contents

Introduction

An employee is entitled to a minimum amount of paid leave (statutory annual leave) of 5.6 weeks in any leave year (capped at 28 days). EU law is responsible for providing 4 weeks (or 20 days) of this entitlement. The balance was given by UK Parliamentary regulations.

The statutory annual leave can include public and bank holidays. The employer can optionally use an accrual system whereby during the first year of employment the proportion of the leave which may actually be taken (with the employer's agreement) builds up over the year. The amount of leave which may be taken builds up monthly in advance at the rate of one-twelfth of the annual entitlement each month.

The statutory annual leave to which the employee is entitled is not in addition to leave that may have been granted under the terms of a contract of employment.

Leave year

Usually the 'leave year' will be specified in the contract of employment. If no mention is made of the 'leave year' it will start on 1 October 1998 or the date on which your employee commences employment (if later), and each subsequent anniversary of either of these dates.

Leave may only be taken in the leave year in respect of which it is due. There are exceptions where it has not been possible to take annual leave because of absence through sickness, or where the employee is on a period of statutory leave (such as maternity leave). Leave entitlement may not be replaced by a payment instead of the leave, except where employment is terminated. Your employee must give you written notice specifying the dates on which leave is to be taken unless there is an agreement to vary or exclude the notice.

Notice period

The period of notice must be twice as many days in advance of the earliest day specified in the notice as the number of days to which the notice relates. For example if your employee gives notice that they will be away for 14 days, 28 days' notice in advance of the first of the 14 days' leave must be given. You can issue a similar notice requiring your employee to take leave on particular days.

You have the power to issue a notice to your employee requiring them not to take leave on particular days. Such notice must be given to your employee as many days in advance of the earliest day specified in the notice as the number of days to which the notice relates. Once again this right can be modified or excluded by an agreement between you and your employee.

Payment or leave

When employment ends

Where your employee loses part of their entitlement to annual leave because their employment terminates during the year, they do have a right to payment instead of leave. The amount that is due and the way in which that amount is calculated may form part of an agreement between you and your employee. If not, the period of leave to which your employee is entitled is multiplied by the proportion of the leave year that expired before employment ended. The period of leave taken by your employee between the start of the leave year and the date of termination of his employment is deducted.

If your employee received more leave in a particular year than was properly due, the regulations do provide for you to be compensated.

Calculating holiday pay

The Employment Rights Act 1996 (or the Employment Rights (Northern Ireland) Order 1996) governs the payment of leave and determines the amount of a normal week's pay.

A normal week's pay is therefore:

  • If your employee works regular hours, what they would earn for a normal working week
  • If the normal working hours vary from week to week, the average hourly rate of pay your employee receives, multiplied by an average of normal weekly working hours over the previous twelve weeks
  • If your employee does not work normal hours at all it is the average pay received over the previous twelve weeks

Normal working hours are said to be the normal hours fixed by the contract of employment. Overtime that is guaranteed by an employer or required as part of an employment contract is included as normal working hours, as well as commission payments. These must also be included when calculating an employee's holiday pay.

Sickness absence and annual leave

There are special rules regarding the treatment of an employee's entitlement to statutory annual leave whilst they are unable to work due to sickness or injury. It applies only to the 20 days' annual leave granted by the EU.

Employees continue to accrue (build up) this part of their statutory annual leave whilst absent from work due to sickness or injury, no matter how long the period of absence lasts. An employee can take their statutory annual leave at the same time as their sick leave and receive their normal rate of pay. Alternatively, the employee can carry over all of their accrued annual leave into the next holiday year. However, the employee must use their accrued annual leave within 18 months starting from the end of the holiday year in which they accumulated the holiday.

Employees can also choose to have their statutory annual leave changed to sick leave if their scheduled holiday coincides with them being sick or injured either just before taking their holiday or whilst on holiday. The employee must be allowed to arrange to take the statutory annual leave that they missed at a later date. If there is insufficient time for them to take this in the same holiday year, then you must allow the employee carry it forward into the next holiday year.

Maternity leave and annual leave

If a woman is on maternity leave, she must be permitted to take her statutory annual leave during a period other than the period of maternity leave.

Failure to comply

If you fail to provide your employee with paid annual leave, the sanctions are similar to those that were imposed for breach of rest entitlements as outlined above. Where you fail to provide payment for a period of annual leave or pay for untaken leave on termination of employment, the employment tribunal must order payment of the amount due to the employee.