Oct 4

How to manage annual leave: five common employer pitfalls


Mismanagement of annual leave can have a dramatic impact on a company’s business, as demonstrated by Ryanair’s cancellation of hundreds of flights after it admitted “messing up” the planning of pilots’ holiday. Where do employers commonly get annual leave wrong?

1. Not encouraging employees to take annual leave across the leave year
Allowing staff to build up too much annual leave and not spread out their holidays over the year can be a major problem for employers. This can occur where there is an excess of work to do or where a business is struggling – in either case employees may feel that they are simply not in a position to take annual leave at certain times during the year without putting their job at risk.

Employers should therefore encourage employees to plan and take annual leave. This will prevent the workforce from building up an excessive amount of leave to take at the end of the leave year which is always tricky for a business to navigate through. It will also ensure that employees take proper breaks through the year thus reducing the risk of increased absenteeism due to stress and other factors caused by over work.

Typically, the responsibility for monitoring annual leave is allocated to line managers, who should periodically check their employees’ annual leave balance and remind staff that they need to use the holiday up by the end of the leave year.

2. “Buying out” employees’ annual leave entitlement

An employer may be tempted to offer staff a cash substitute in return for giving up their annual leave entitlement, for example to solve a staffing crisis, complete a big project, or tackle a build-up of accrued but untaken holiday across its workforce.

However, it is unlawful to pay employees in lieu of their minimum statutory annual leave entitlement except on termination of employment. When an employee leaves a job part way through the holiday year he or she will be entitled to be paid for any accrued statutory holiday not taken at the date of termination.

3. Allowing employees to carry over excessive amounts of holiday

The general rule is that your basic statutory holiday entitlement under the EU Working Time Directive (four weeks of holiday) must be taken during the holiday year. Otherwise it will be lost.

The only exception is if you are unable to take your holiday because you are sick, injured, pregnant or on maternity leave. In these circumstances, you can carry forward your holiday into the next holiday year.

If you are entitled to more than the statutory minimum amount of paid holidays (in the UK all employees are automatically entitled to a minimum of a further eight days) then you may be able to carry the extra days forward – or at least some of them. This depends upon your contract of employment which should clearly state whether or not you are allowed to carry over accrued but untaken days holiday from one holiday year to the next, if so how many, and whether they have to be taken say within the first quarter of the next holiday year.

4. Allowing too many employees to take leave at the same time

One of the biggest dangers for employers is the knock-on effect on the business of allowing too many employees to take time off during particular periods, typically the summer or at Christmas.

Line managers can sometimes be reluctant to turn down employees’ holiday requests, particularly if an employee has already planned a trip, but they should be reminded that employers are not obliged to agree to a worker’s request to take holiday at a particular time, unless the employment contract provides otherwise.

Employers should have a clear policy on holiday requests (typically, a “first-come, first-served” approach). Line managers should be brave enough to turn down holiday requests (with the correct notice) when the timing of leave would cause the business difficulties.

5. Not paying employees the right amount during annual leave

In recent years, perhaps the single biggest employment law headache for UK employers has revolved around the calculation of holiday pay – namely the fact that it is no longer permissible to calculate holiday pay on the basis of an employee’s basic pay only.

Case law has established that pay during annual leave should now include other payments such as overtime pay (both compulsory and voluntary), commission, standby/call-out allowances, shift premia and travel allowances.

Employers need to decide on a sensible approach to holiday pay calculations, particularly the length of time used to calculate the average (with 12 weeks being a popular suggestion) and what allowances should be included (if in doubt, include it). A holiday pay miscalculation across the workforce could be costly in the long run.

Managing annual leave: do’s and don’ts for line managers

1. Do encourage staff to submit dates for their holiday as far in advance as possible.
2. Do review regularly whether or not employees have taken, or at least planned to take, some of their holiday leave.
3. Do remind employees periodically how much annual leave they have outstanding.
4. Do ask any employee who has not taken any holiday or submitted any holiday dates by for example the middle of the holiday year to nominate holiday dates as a matter of urgency.
5. Do ensure that holiday leave is planned in such a way that the department has adequate cover at all times.
6. Do be proactive in the management of holiday.

7. Don’t leave the matter of holiday to chance.
8. Don’t take the view that it is up to each individual to decide whether or not he or she wants to take holiday.
9. Don’t wait until near the end of the holiday year before reviewing whether or not employees have taken all their holiday.
10. Don’t give in to employees’ requests for pay in lieu of holiday.
11. Don’t make staff feel guilty about taking holiday.