Annual leave policy clinic: Summer days and holiday entitlement

Gagandeep Prasad and Caroline Buckley spell out the vital contract and policy documentation for holiday entitlement.

The summer holidays are fast approaching. This can be a difficult time for employers as the majority of the workforce will want to take at least two weeks of their annual leave.

Of course, everyone is entitled to take a holiday but they obviously cannot all do so at the same time. To avoid problems and discontent, advance planning and good management are essential, as well as having a clear and effective holiday policy in place.

But what should be included in the policy? What are employees entitled to? And how can employers ensure everyone is able to take their holiday without disrupting business?

Documentation

The starting point is to ensure that an employee’s holiday entitlement is set out in the terms and conditions of employment (as required by Employment Rights Act 1996) together with any terms relating to the calculation of holiday pay on termination. In addition to this legal requirement, employers should ensure other provisions relating to holiday, as detailed below, are set out clearly either in the employment terms or in a separate policy.

Entitlement

All full-time workers (not just employees) are entitled to a minimum of 4.8 weeks’ paid annual leave a year, subject to a few exceptions under the Working Time Regulations 1998 (WTR).

This must be pro-rated for part-time workers. This statutory entitlement increased from four weeks to 4.8 weeks in October last year and is due to increase again to 5.6 weeks in April 2009. The increase is to take account of the fact that the four weeks did not specifically exclude public holidays and many employers were including the eight public holidays in the four-week entitlement.

There is still, however, no statutory right to paid time off on any public holiday and the question of whether someone is required to work on a public holiday is a matter of agreement between the employer and the worker, depending on the nature of the industry or business. Employees may also be entitled to additional contractual holiday and the amount of this will depend on what has been agreed between employer and employee.

However, employers should be aware that if additional leave increases with the length of service, any increase after five years’ service is potentially indirect age discrimination. The employer will need to show that this reasonably appears to fulfil a business need, such as encouraging loyalty or rewarding experience.

Part-time workers

Part-time workers are entitled to the same amount of holiday as full-time workers but this should be pro-rated. The other issue to consider is in relation to public holidays and whether part-timers are entitled to time off in lieu if they do not normally work on a bank holiday. The DBERR guidance suggests that best practice is to pro-rate the eight public holidays.

Holiday requests

  • What if everyone wants to take holiday at the same time?

The issue many employers are concerned with is how to manage the holiday season when everyone wants to take holiday at the same time, and to what extent they can agree to or reject holiday requests.

There are notice provisions set out in the WTR. If the employer wishes to agree different terms these must be set out in the contract or policy. Under the WTR, a worker must give notice that is at least twice the period of the annual leave they are requesting – 10 days’ notice of a request for five days’ holiday. If the employer wishes to refuse a request it can serve a counter-notice. This must be at least as many calendar days before the proposed start of the leave: in the above scenario at least five calendar days before the start of the holiday.

If the worker does not follow the requirements that apply to them (whether in the policy or contract or under WTR), they cannot insist on taking their holiday at the time requested. From a practical viewpoint, employers should try to agree when holiday is going to be taken as early as possible to ensure that there is enough cover.

  • Can employers specify when holiday should be taken?

An employer may wish to require its workers to take annual leave at particular times of the year. This is permitted under the WTR provided the employer gives notice of at least twice the length of the period of leave that the worker is being ordered to take – in the case of a two-week closure over Christmas, the employer must give at least four weeks’ notice. In practice, periods of compulsory holiday are usually known and notified to workers well in advance or in their contracts.

  • Limits on the amount of holiday

This is not dealt with in the WTR and is therefore up to the employer whether to impose a limit on the amount of holiday that can be taken at any one time. In practice, this tends to be two weeks but will depend on the nature of the business. It is unlikely that an employee will want to use up all their holiday in one go, but there may be special circumstances where they might wish to take a longer period, for example, a honeymoon. It is always open for the employer to exercise its discretion and allow this.

  • What happens if an employee isn’t able to take their full entitlement?

In this case, under the WTR, they are not permitted to carry over statutory holiday into the next holiday year. However, there is nothing to prevent an employer agreeing for contractual holiday to be carried over, or to exercise its discretion in certain circumstances and permit the employee to carry over statutory holiday – the employee is unlikely to complain so, practically, it is not likely to be an issue. Employees are not allowed to be paid in-lieu of statutory holiday except on termination.

Other considerations

  • What about absent employees?

Maternity leave

Employees accrue statutory and contractual holiday while on ordinary maternity leave and statutory leave while on additional maternity leave. However, this is set to change from October 2008 when the distinction between ordinary and additional maternity leave will be removed.

From a practical point of view, employers should ensure the employee takes her accrued entitlement before they go on maternity leave, because of the statutory restriction on carrying over leave. However, there is nothing to prevent the employer agreeing to let the employee carry over contractual holiday over the statutory minimum in these circumstances.

Long-term sick leave

Those on long-term sick leave do not have any entitlement to accrue holiday if they are absent for the entire holiday year. However, if they are absent for only part of the year their entitlement continues to accrue. This issue is before the European Court of Justice so the final determination is yet to be made.

Conclusion

If a policy sets out clear parameters for requesting and granting holiday and the process is properly managed, this should minimise the potential for disruption over the summer months.

Gagandeep Prasad, solicitor, and Caroline Buckley, professional support lawyer, at Charles Russell LLP

Q&A: holiday entitlement

Policy guidelines: annual leave

As a minimum, the policy should cover:

  • The dates of the holiday year
  • The worker’s entitlement and the position in relation to public holidays
  • The procedure for notification and approval of holiday dates
  • The period of notice the worker should give when requesting holiday and the period in which the employer may serve a counter-notice
  • The period of notice the employer has to require a worker to take holiday on certain dates
  • Any limit on the amount of annual leave that can be taken or requested
  • How holiday will be dealt with at the end of employment and, in particular, how any pay for accrued but untaken holiday is calculated. This is usually done at the rate of 1/260th of annual salary

Key points

  • Since 1 October 2007 all full-time workers have been entitled to a minimum of 4.8 weeks annual leave. This should be pro-rated for part-timers
  • Arrangements for agreeing holiday with the employer should be set out in the contracts. This minimises the potential for problems
  • Employees on maternity leave accrue holiday that should be taken before or on return from maternity leave to ensure it is not lost
  • Employees on sick leave accrue holiday but not if they are absent for the entire year
  • Carrying over statutory holiday is not permitted under WTR
  • Payment for accrued untaken holiday is not permitted under WTR except on termination of employment

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