Understanding and managing annual leave in UK startups

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If you’re looking to bring on board your first employees, or if you are already established and are reviewing what benefits you offer, you will likely already know that by law, your people are entitled to a certain number of employee holidays a year. Where it can get a bit less transparent is around how annual leave is managed. Can you cancel an already booked employee holiday? How much notice should be given for annual leave? Can employers dictate when annual leave is taken? 

Read on to see some practical elements of managing employee holidays and what you can and can’t do. 

What does the law say?

Holiday entitlement and holiday pay fall under the Working Time (Amendment) Regulations 2007, which came into effect on 1 April 2009. Employees and workers are covered by this legislation. The below points are far from an exhaustive list but are the most relevant to this discussion;

  • The minimum statutory holiday entitlement for a full-time employee is 28 days or 5.6 weeks including public holidays
  • Part-time workers are entitled to a minimum of 5.6 weeks of paid holiday each year, calculated on a pro-rata basis, according to the hours they work
  • Contracts of employment may stipulate whether all public holidays or only particular bank holidays are included in their annual entitlement (for the avoidance of doubt, be clear on your company position on bank holidays in your employment contract and stick to it)
  • Any unauthorised annual leave can result in disciplinary action being taken

How much notice should be given for annual leave?

The Working Time Regulations 1998 does actually cover how much notice should be given by both an employee and the employer when requesting holiday. It states that both should give ‘twice as long’ notice as the length of the holiday. This would mean that for a day off, 2 days’ notice should be given. In real terms, this can often be quite impractical, especially for startups and small businesses that might require more planning to manage leave (especially when one person can wear many hats.. I am looking at you fellow founders!).  Luckily, the regulations also permit organisations to set out their own procedures regarding the length of notice required from an employee prior to booking holiday leave.

Struggling to manage leave notices in your startup? We’ve got experience in that area. Get in touch for a consultation.

Can an employee holiday request be refused?

Yes. The regulations state that if an employer intends to refuse a holiday request, they should do so as soon as possible before the holiday is taken. Holiday requests may be declined depending on the operational needs of the business but an alternative date should always be offered. An example of this would be if you run an e-commerce business that employs 3 customer service staff and all 3 request the same time period off. It would be reasonable for you to decline on account of needing at least one person in position for operational needs. In this instance, you need to decide on a fair an equitable selection process for deciding who gets the leave and who doesn’t.  

Can employers dictate when annual leave is taken?

Yes. An employer can stipulate (within reason) when holiday can be taken. But what’s reasonable? Can you say that holidays can only be taken on a Wednesday? No. Can you say that x amount of holidays should be taken in quieter trading periods? Yes.

Do employee leave requests have to be made in writing?

No. Companies can and should outline how a holiday must be booked but there is no specificity into which format. It is worth documenting as it provides structure and clarity to a process that will likely be followed numerous times throughout the year. If you’re just starting out, go for something like Google Forms as an automated way to capture and record requests. As you become more established then look to your HR system as most modern solutions have the functionality built in. 

Can employers limit the duration of annual leave?

Yes. As above, it might not be reasonable for an employee to be out of the business for their entire holiday allowance in one go. Likewise, you may wish to enforce a minimum period of leave to be taken in one go at some point in the year. It’s common in financial services for employers to require a minimum two-week period of leave (often cited as allowing for fraud to be easily spotted) but you may want to enforce a time length purely from a wellbeing perspective. 

Can employers insist employee holiday be used for company shutdowns?

Yes. Christmas and summer shutdowns are usually the most common. We are actually big fans of company-wide shutdowns here at Talent Tent as they help people really switch off and get rid of any FOMO. 

Do employers have to pay for unused annual leave?

It depends. Generally, unused annual leave gets forfeited at the end of the year. But there are some exceptions, like if an employee couldn’t use their holiday due to sickness.

For those on long-term sick leave, they can carry over 20 days out of their standard 28-day entitlement when they return. Maternity or family leave allows for the full 28 days to be carried over to the next year.

However, recent court decisions (Smith v Pimlico Plumbers, 2022) have shaken things up a bit. Now, an employee won’t lose their unused leave unless three conditions are met:

  1. They’ve been offered the chance to take their holiday.
  2. They’ve been actively encouraged to use their holiday.
  3. They’ve been told they’ll lose the holiday if they don’t use it within the year.

So, even if your policy says ‘use it or lose it,’ you need to actively remind and encourage your staff to take their leave, or they can carry it over.

Can unused annual leave be rolled over?

If an employee gets the basic 28-day holiday allowance, they can roll over up to 8 days to the next year, but only if you, the employer, agree. If you’re more generous with holidays, it’s up to you how many of those extra days can be carried over. Make sure to spell this out in the employment contract.

Or, if you prefer, you can decide on carry-over requests individually and as they come up. Just remember to keep it fair and consistent.

What are the risks of getting annual leave policies and procedures wrong?

Not to end on a negative note but it’s worth noting some of the consequences of getting it wrong and looking at a couple of examples of where the courts have agreed that yes, a company is at fault. 

On the one end of the scale, getting it wrong will leave your people confused as to where they stand, overworked if they are not taking appropriate leave and potentially leaving the company. On the other end of the spectrum can come some pretty significant financial penalties applied from tribunals.

Take a look at the very recent case of Ms Julie-Ann Verhulpen AND The Cabin at Elmer Limited. The claimant in this instance was unfairly dismissed and not paid 31 days holiday that she had accrued. The judge makes comment on the unusual circumstances of having taken no leave in an entire year (as this is what happened) but believed the claimant based on the evidence given. Even though the dismissal came after the end of the holiday year, the leave was owed and the respondent was ordered to pay. 

The full case is worth a read as it has lots of interesting elements including the fantastic line from the judge “Having established the above facts, I now apply the law”. 

Summary

Like most things in HR, managing annual leave and employee holiday can be complicated, but it needn’t be. The best thing employers can do that will benefit both themselves and any employees is to document as many of the variables as possible. Commit to policy what you do and do not allow and your reasons for it. Provide a route of escalation, but having everything outlined in the first instance will likely mean that it never needs to get to that point. Most importantly, ensure your policies are applied consistently and fairly.

Need a hand? It’s what we do. We make HR and recruitment relevant and impactful to startups and small businesses. Want a no-pressure look at how we might be able to support you and your people? Let’s chat

Katie Feagan

Katie brings a wealth of experience in the talent acquisition and people space, and has held senior HR and Talent leadership roles in the broadcasting and fin-tech industries. Katie has an MBA and is a chartered member of the CIPD.

Lives the good life with her chickens and bees, often to be found at festivals, the person you need in a crisis.
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