Carrying Over Annual Leave

The Full Guide to Carrying Over Annual Leave

Carrying over annual leave is not only better for business but is also required by law in the UK. So what do you do if an employee hasn’t taken all of their annual leave in a year? Allow us to break this down for you.

Below you will find out what you need to know about the transfer of annual leave and the associated legal aspects.

What is annual leave?

Annual leave is paid time off to which employees are legally entitled. In the UK, almost all employees have a legal right to at least 28 days – or 5.6 weeks – of paid holiday per holiday year.

Paid holiday is also known as statutory holiday entitlement or annual leave and applies to:

• Temporary workers

• Employees with irregular working hours

• Workers on zero-hour contracts (AKA casual workers)

This 5.6 weeks of paid leave is made up of two periods: four weeks under Regulation 13 and 1.6 weeks under Regulation 13A of the Working Time Regulations 1998 (SI 1998/1833).

As a rule, the four weeks of annual leave cannot be carried over to the next year, but the 1.6 weeks can, provided there is a written agreement between the employee and the employer that provides for this.

Depending on the employer, an employee’s annual leave may also include public holidays. The employer can also grant its employees additional vacation beyond the statutory minimum vacation.

When can employees take their vacation?

Employees must take their annual vacation within the vacation year set by the employer.

A vacation year can cover any 12-month period. A typical vacation year runs from January 1st to December 31st, but it can also start on the first day of employment and end on the anniversary.

For example, if an employee’s first day at a company was March 7, 2022, their vacation year would begin on that day and end on March 7, 2023.

How the employee acquires his annual leave

An employee acquires his right to annual leave from the first day of his employment. Leave entitlement may also be acquired during maternity leave, paternity leave, adoption leave, shared parental leave or any other type of statutory leave from work.

These rights also apply to employees on leave. You can continue to accrue your annual leave (and any other leave you are entitled to) while you are on leave in accordance with your employment contract.

Some companies have an accrual system whereby employees accrue part of their annual leave during the first year of employment. Essentially, they receive one-twelfth of their annual vacation each month until they reach their first work anniversary.

From then on, annual leave remains the same – unless it is increased or reduced by the employer due to a change in position or contract. If an employee leaves his company before he has used up all of his statutory vacation entitlement, the employer must compensate him accordingly.

How is annual leave calculated?

Below are some basic calculations you can use to determine an employee’s annual leave entitlement based on their employment status.

You can also calculate annual leave entitlement for a full leave year or partial leave year using this calculator provided by the government.

To calculate annual vacation pay for a full-time employee, multiply the typical number of days worked per week by the number of paid vacation days they receive per year in weeks.

Example: Kelsey works five days per week and has 6.6 weeks of paid vacation available each year.

5 (working days per week) x 6.6 (weeks of paid vacation) = 33 days annual vacation per year.

Part-time employees are entitled to 5.6 weeks of paid vacation in proportion to the number of hours they work per week. To calculate the annual vacation of a part-time employee, multiply the number of working days per week by 5.6.

Example: If Kim, a part-time employee, worked three days per week, she would receive 16.8 days of annual leave per year (3 x 5.6 = 16.8).

If Kim’s employer offers more than the usual 5.6 weeks of paid leave, her annual leave would be calculated in proportion to that amount.

If a worker doesn’t work a certain number of hours per week, you can consider them a casual worker.

A casual worker – also known as a zero-hours worker – works for a company on an ad hoc basis and is not permanently on the payroll, but is not self-employed. These employees are entitled to a minimum prorated annual holiday of 5.6 weeks after they have completed a full year of holiday with the company.

There is no clear government guidance on how to convert casual workers’ annual leave entitlement into days or hours, which would better reflect their employment status. However, a common method of calculating holiday entitlement for casual workers is to use the average number of hours worked in the 12 weeks prior to their holiday.

Another common method is the 12.07% method, which is used to determine how much holiday entitlement a casual worker earns per hour.

Example: Sarah is a casual worker and is entitled to 5.6 weeks of paid annual leave per year. Last week she worked 18 hours. The following calculates how much annual leave she has accumulated this week:

5.6 (weeks of paid vacation) / 46.6 (number of weeks remaining in a year) = 0.12017 x 100 = 12.07%.

This means that Sarah acquires a holiday entitlement of 12.07% per hour.

12.07% of 18 (hours worked) = 2.1726 hours of accrued vacation.

Sarah’s employer could use this calculation to track her holiday entitlement and ensure she meets her minimum entitlement. It is important to note that rather than rounding down the vacation amount their employees receive, employers can round it up.

Deduction of vacation from transferred vacation

If an employee carries over their annual leave to the next year, the employer should deduct the leave from the amount that expires first.

Example: Sam has one week of annual vacation, which he carries over into 2023. He now has a total of 6.6 weeks of annual vacation (5.6 weeks + one week). If Sam books a week’s holiday, this should be deducted from the week carried over, not from the 5.6 weeks of new holiday entitlement.

How is annual leave transferred?

Carrying over annual leave beyond the 5.6 weeks you are entitled to is a privilege. While some employers allow employees to carry over all of their unused annual leave into the next year, others do not. In other words: If an employee does not use the annual leave to which he is entitled during a holiday year, he loses it.

However, there are some exceptions. Legally, an employee can carry over all of their annual leave to the next year if they were unable to take it due to maternity, paternity or adoption leave. If an employee was unable to take their annual leave due to illness, they can carry over up to 20 days to the next holiday year.

Some employers may limit the number of vacation days an employee can carry over to the next year. As a rule, this limit is five working days.

The employer can also set an expiry date for vacation carried over from the previous year. For example, employees must use their carried over vacation within the first three months of the next vacation year.

Example: Jim’s employer grants him 30 days of paid annual leave per year, with no restrictions on carryover of leave. Through the end of 2022, Jim has only taken 25 days of his annual vacation. The remaining 5 days can therefore be carried over to the next year, so that he has 35 days of annual leave in 2023.

Covid-19 and annual leave: what has changed?

In March 2020, new emergency legislation (The Working Time (Coronavirus) (Amendment) Regulations 2020) was passed to help companies protect their employees from losing their statutory holiday entitlement due to the impact of Covid-19 by providing greater flexibility in offer this matter.

This legislation ensures that employees who have been unable to take leave for “reasonably practicable reasons” related to coronavirus can carry forward up to four weeks of annual leave over the next two leave years.

The government has defined what “reasonably practicable” factors an employer should consider when determining whether or not an employee can take leave due to the impact of the pandemic:

• Whether the company is facing a significant increase in demand due to coronavirus that reasonably requires the employee’s continued presence at the workplace and cannot be met by alternative practical measures.

• The extent to which the company’s workforce will be disrupted by coronavirus and the practical options available to the company to temporarily undertake essential activities.

• The employee’s state of health and how quickly he or she needs a period of rest and recovery.

• The time remaining in the employee’s vacation year to allow the employee to take their vacation at a later date within the vacation year.

• The extent to which the employee’s furlough would impact society’s response to and recovery from the coronavirus.

• The ability of the remaining available workforce to cover the employee’s vacation.

Some workers may choose not to take their annual leave because they cannot travel abroad due to pandemic restrictions. However, as this is not considered a “reasonable, practicable” reason for an employee not to take their holiday, it is not covered by the legislation.

Do you have a vacation management system?

The world of work is becoming increasingly complex. The last thing you should be worrying about is calculating holiday entitlements, tracking them or ensuring you comply with legal requirements. Allow us to help.

IceHrm is an all-in-one HR software that helps you improve your HR work now and in the future. This includes leave management software that allows you to manage leave requests, track any type of leave (from emergencies to sickness and holidays), and handle all other important HR processes.