If you’ve just incorporated your company and are looking to hire your first employee but don’t know where to start with setting up people/HR policies such as annual leave, this article is for you. We’ll dive into what annual leave is and its legal framework, how you can set up your own holiday policy, how holiday accrual works, and how to calculate pro-rata holiday for part-time workers.
What is Annual Leave?
Annual leave, often referred to as "holiday", is a period of time that employees are entitled to take off work each year. In the UK, the majority of workers have the right to 5.6 weeks of paid holiday per year, also known as statutory leave entitlement.
What is Statutory Annual Leave?
Statutory annual leave refers to the minimum legally required holiday that employers must provide their employees.
For full-time employees, this equates to 5.6 weeks or 28 days per year for a five-day week worker.
Statutory annual leave is paid in full by the employer. This means a worker will be paid their full salary whenever they take time-off as statutory annual leave.
Does Annual Leave Include Bank Holidays?
The 5.6 weeks annual leave allowance does include UK bank holidays. This means that out of 28 days, 8 of these days are already booked as time-off on UK bank holidays. Find out more when these UK bank holidays for 2023.
However, many employees also offer the possibility for employees to ‘opt-out of Bank holidays’ - meaning they can choose to take these 8 days on days that aren’t necessarily bank holiday days. This practice is becoming increasingly popular with UK companies as it can be seen as more respectful of employees’ diverse religious and cultural practices.
Regardless of whether these 8 days are booked on UK Bank holidays or not, these days are paid in full by the employer.
What is the Average UK Holiday Allowance?
5.6 weeks (or 28 days) is the minimum annual leave a UK company can offer its employees.
When starting out, a lot of startup founders will offer the statutory minimum to employees in order to keep costs down - remember, annual leave is paid by employers at the employee’s full day rate.
Additional Annual Leave Policies: Beyond the Minimum
Although 28 days per year (or 5.6 weeks) is the statutory minimum, a lot of employers choose to be more generous with the time-off they provide their employees. More generous time-off policies being one of most popular benefits amongst employees, doing so can boost your company’s competitiveness when wanting to recruit the best talent.
Offering more generous annual leave policies can take multiple forms, for example:
- offer a bigger paid holiday allowance to their staff - for example 30 or 32 days instead of 28 days.
- decide to make annual leave unlimited for employees, which has been a popular practice with some startups in recent years,
Fixed Days vs Unlimited Time Off
Fixed days of leave are typically more common, offering a set amount of days each year. Conversely, unlimited time off, while less common, allows employees to take leave as needed, promoting trust and flexibility, though it can have its own challenges around abuse and lack of utilisation.
Other forms of discretionnary annual leave
On top of ‘statutory’ annual leave, it is customary for many companies opt to offer additional annual leave policies as part of their benefits package, especially in the tech sector. Additional leave examples include:
- a day off for an employee’s birthday
- ‘duvet days’,
- paid leave whenever an employee becomes a pet owner,
- compassionate leave personal emergencies
More paid time off is one of the most popular company benefits an employer can offer. Offering a competitive benefits package with more paid time-off has been proven to be an effective way for companies to attract great talent and retaining it.
The Annual Leave Calendar & How Holiday Accrual Works
How is Annual Leave Calculated?
As soon as an employee starts employment, they’ll start accruing their annual leave from their first day of work. That includes when they're on:
- a probationary period
- sick leave
- maternity, paternity, adoption or shared parental leave too.
Annual leave is typically calculated based on an employee's working pattern. For full-time workers, it's usually a straightforward process, but part-time or irregular hours will require a pro-rata calculation. Read about how to calculate holiday entitlements for part time employees and workers.
Does Annual Leave Start / Reset On A Calendar Year?
Technically, no. As annual leave is accrued based on how much an employee has worked in a year - that is, 5.6 weeks of annual leave for a full year’s work.
However, the vast majority of companies, including startups, will follow the calendar year as their annual leave allowance cycle. They’ll offer their employees their full annual allowance upfront from the 1st January, and this will reset on the 1st January the following year.
The reason for this is to minimise the amount of admin involved with calculating holiday accruals for employees, and provide more flexibility for employees who may want to book holiday earlier in the year than they would have accrued.
How Does Holiday Accrual Work?
Holiday accrues throughout the year. For each month of work, an employee accrues a fraction of their total holiday entitlement. This can be calculated by dividing the total annual leave (e.g. 28 days) by the total number of months in a year (12).
How Much Holiday Do Employees Accrue Each Month?
In the UK and based on the statutory amount of annual leave a full-time employee would get in a year, they’ll accrue 2.33 days of holiday each month (28 days divided by 12 months).
This accrual amount will however depend on your own annual leave policy. If you offer a more generous annual leave allowance, employees will accrue more holiday every month.
You can calculate how much employees accrue by doing the following calculation:
Number of annual leave days in a year / 12 months = 1 month’s worth of holiday accrual.
Carry Over Holidays
UK law permits employees to carry over up to 1.6 weeks of unused annual leave into the next year under certain circumstances - for example they’ve not been able to take up their full allowance due to work commitments, sickness, or maternity leave.
Beyond this statutory limit, you can choose to offer more flexibility to your employees when it comes to carrying over annual leave.
We’ve seen a lot of companies in the tech industry and startups offer the possibility to carry-over up to 5 days of annual leave into the following year, however this is entirely discretionary.
Holiday Pay in the UK
Holiday pay in the UK is a critical component of employee compensation and a legal requirement under UK employment law. For each hour an employee works, they're also earning a rate of pay towards their holiday. When an employee takes their statutory leave (5.6 weeks for full-time employees), they're entitled to be paid the same rate as if they were working. Furthermore, if an employee leaves a company, they are entitled to receive pay for any unused statutory holiday.
Looking for more info? Check out the essentials of Holiday Pay in the UK.
Holiday Pay When an Employee Leaves Their Job
In the UK, when an employee leaves their job, the law states they should be paid for any holiday they've not taken. This is part of the UK employment law and is a non-negotiable.
If one of your team is leaving the company and they have holiday they haven't taken yet, they're allowed to get paid for it. This is what's known as "payment in lieu" of holiday.
However you can only do this for leave they are legally entitled to and haven’t used. If you offer more holiday than the law requires, you can't pay for this in cash unless it's something you've agreed to in their contract.
Keeping a record of how much holiday everyone's taken can be a bit of a headache, but it's really important so you can make sure they get the right pay when they leave.
Managing Partial Days of Annual Leave
It’ll often happen that an employee’s annual leave allowance results in fractions of days. This can happen for example when an employee leaves or joins part-way through the year - they could end up with an annual allowance of 10.23 days.
In the UK, it is customary for employers to round up these fractions to the nearest half or full day to maintain simplicity. This rounding up should always be up, and not down - it is against the law to lower an employee’s allowance, especially if they only get the statutory amount.
Pro-Rata Annual Leave: How to Work Out Part-Time Holiday
Part-time employees and workers are entitled to paid holiday in the same way as full-time employees. The only difference will be that part-time employees will be entitled to a proportion of their statutory annual leave based on the number of days they work in a week on average. This is called pro-rata (which just means 'a part of'). It's worked out by multiplying the full-time holiday (5.6 weeks) by the number of days they work each week.
For example, if someone works 3 days a week, they'd get 16.8 days holiday (3 x 5.6) each year. It's fair, it's equal, and it's a good thing to do. A lot of businesses use online calculators or HR software to help with the maths and to keep track of holiday, which is something you might want to consider.
We’ve dedicated a full article explaining how to calculate holiday entitlement for part time employees and workers, as the method can get a little complex depending on the type of contract the employee or worker is on.
FAQs
What is the Minimum Annual Leave UK Employers Must Provide?
The minimum annual leave employers must provide in the UK, otherwise known as statutory leave, is 5.6 weeks or 28 days for a full-time employee. However, this can include bank holidays, of which there are typically eight in a year.
When Can an Employee Request Leave?
Employees can request leave at any time, but it's usually subject to approval from their manager or HR department. Some companies have a policy requiring notice equal to twice the length of the requested leave.
Can an Employer Dictate When Leave is Taken?
Yes, employers can dictate when leave is taken, especially for operational needs or if a leave request is not feasible due to business demands. However, this should be done reasonably and employees should be notified in advance.
Can an Employer Cancel a Holiday Once It’s Been Approved?
Employers have the right to cancel pre-approved leave, but should avoid doing so unless absolutely necessary. If they do, they should provide the same amount of notice as the length of the holiday, and may need to reimburse the employee for any costs incurred due to the cancellation.
Onfolk Makes Managing Payroll and HR Simple and Stress-Free
The benefits of combined payroll and HR software is that you save a tonne of time with admin tasks relating to running your business all the while saving money on expensive accountants and HR consultants.
Onfolk is a modern, cloud-based platform built for startup founders and business owners employing a diverse team. Our platform combines a HR software (including time-off management!) as well as an almost fully automated payroll, so all your employee and pay data is in one place, accesible at all times.
As your employee data syncs automatically with your payroll, it takes 3 minutes every month to run. This also means you only need to keep one system updated, and your employee data and payroll are always free of discrepancies.
On top of being simple and fast to use, Onfolk provides you with other tools key to building your team effortlessly: time-off management, 2-click employee onboarding and offboarding, customisable task lists, integrations with Xero, Quickbooks and your pension provider, fully customisable people metric dashboards and reports, and so much more.
If you use Slack to communicate with your team, Onfolk integrates with Slack too - get reminders for employee birthdays and anniversaries, as well as who is joining soon or on holiday that week.
Running a business comes with so many hats - Onfolk takes care of payroll and people admin for you, so you can focus on growing your team and business instead.
If you’ve just incorporated your company and are looking to hire your first employee but don’t know where to start with setting up people/HR policies such as annual leave, this article is for you. We’ll dive into what annual leave is and its legal framework, how you can set up your own holiday policy, how holiday accrual works, and how to calculate pro-rata holiday for part-time workers.
What is Annual Leave?
Annual leave, often referred to as "holiday", is a period of time that employees are entitled to take off work each year. In the UK, the majority of workers have the right to 5.6 weeks of paid holiday per year, also known as statutory leave entitlement.
What is Statutory Annual Leave?
Statutory annual leave refers to the minimum legally required holiday that employers must provide their employees.
For full-time employees, this equates to 5.6 weeks or 28 days per year for a five-day week worker.
Statutory annual leave is paid in full by the employer. This means a worker will be paid their full salary whenever they take time-off as statutory annual leave.
Does Annual Leave Include Bank Holidays?
The 5.6 weeks annual leave allowance does include UK bank holidays. This means that out of 28 days, 8 of these days are already booked as time-off on UK bank holidays. Find out more when these UK bank holidays for 2023.
However, many employees also offer the possibility for employees to ‘opt-out of Bank holidays’ - meaning they can choose to take these 8 days on days that aren’t necessarily bank holiday days. This practice is becoming increasingly popular with UK companies as it can be seen as more respectful of employees’ diverse religious and cultural practices.
Regardless of whether these 8 days are booked on UK Bank holidays or not, these days are paid in full by the employer.
What is the Average UK Holiday Allowance?
5.6 weeks (or 28 days) is the minimum annual leave a UK company can offer its employees.
When starting out, a lot of startup founders will offer the statutory minimum to employees in order to keep costs down - remember, annual leave is paid by employers at the employee’s full day rate.
Additional Annual Leave Policies: Beyond the Minimum
Although 28 days per year (or 5.6 weeks) is the statutory minimum, a lot of employers choose to be more generous with the time-off they provide their employees. More generous time-off policies being one of most popular benefits amongst employees, doing so can boost your company’s competitiveness when wanting to recruit the best talent.
Offering more generous annual leave policies can take multiple forms, for example:
- offer a bigger paid holiday allowance to their staff - for example 30 or 32 days instead of 28 days.
- decide to make annual leave unlimited for employees, which has been a popular practice with some startups in recent years,
Fixed Days vs Unlimited Time Off
Fixed days of leave are typically more common, offering a set amount of days each year. Conversely, unlimited time off, while less common, allows employees to take leave as needed, promoting trust and flexibility, though it can have its own challenges around abuse and lack of utilisation.
Other forms of discretionnary annual leave
On top of ‘statutory’ annual leave, it is customary for many companies opt to offer additional annual leave policies as part of their benefits package, especially in the tech sector. Additional leave examples include:
- a day off for an employee’s birthday
- ‘duvet days’,
- paid leave whenever an employee becomes a pet owner,
- compassionate leave personal emergencies
More paid time off is one of the most popular company benefits an employer can offer. Offering a competitive benefits package with more paid time-off has been proven to be an effective way for companies to attract great talent and retaining it.
The Annual Leave Calendar & How Holiday Accrual Works
How is Annual Leave Calculated?
As soon as an employee starts employment, they’ll start accruing their annual leave from their first day of work. That includes when they're on:
- a probationary period
- sick leave
- maternity, paternity, adoption or shared parental leave too.
Annual leave is typically calculated based on an employee's working pattern. For full-time workers, it's usually a straightforward process, but part-time or irregular hours will require a pro-rata calculation. Read about how to calculate holiday entitlements for part time employees and workers.
Does Annual Leave Start / Reset On A Calendar Year?
Technically, no. As annual leave is accrued based on how much an employee has worked in a year - that is, 5.6 weeks of annual leave for a full year’s work.
However, the vast majority of companies, including startups, will follow the calendar year as their annual leave allowance cycle. They’ll offer their employees their full annual allowance upfront from the 1st January, and this will reset on the 1st January the following year.
The reason for this is to minimise the amount of admin involved with calculating holiday accruals for employees, and provide more flexibility for employees who may want to book holiday earlier in the year than they would have accrued.
How Does Holiday Accrual Work?
Holiday accrues throughout the year. For each month of work, an employee accrues a fraction of their total holiday entitlement. This can be calculated by dividing the total annual leave (e.g. 28 days) by the total number of months in a year (12).
How Much Holiday Do Employees Accrue Each Month?
In the UK and based on the statutory amount of annual leave a full-time employee would get in a year, they’ll accrue 2.33 days of holiday each month (28 days divided by 12 months).
This accrual amount will however depend on your own annual leave policy. If you offer a more generous annual leave allowance, employees will accrue more holiday every month.
You can calculate how much employees accrue by doing the following calculation:
Number of annual leave days in a year / 12 months = 1 month’s worth of holiday accrual.
Carry Over Holidays
UK law permits employees to carry over up to 1.6 weeks of unused annual leave into the next year under certain circumstances - for example they’ve not been able to take up their full allowance due to work commitments, sickness, or maternity leave.
Beyond this statutory limit, you can choose to offer more flexibility to your employees when it comes to carrying over annual leave.
We’ve seen a lot of companies in the tech industry and startups offer the possibility to carry-over up to 5 days of annual leave into the following year, however this is entirely discretionary.
Holiday Pay in the UK
Holiday pay in the UK is a critical component of employee compensation and a legal requirement under UK employment law. For each hour an employee works, they're also earning a rate of pay towards their holiday. When an employee takes their statutory leave (5.6 weeks for full-time employees), they're entitled to be paid the same rate as if they were working. Furthermore, if an employee leaves a company, they are entitled to receive pay for any unused statutory holiday.
Looking for more info? Check out the essentials of Holiday Pay in the UK.
Holiday Pay When an Employee Leaves Their Job
In the UK, when an employee leaves their job, the law states they should be paid for any holiday they've not taken. This is part of the UK employment law and is a non-negotiable.
If one of your team is leaving the company and they have holiday they haven't taken yet, they're allowed to get paid for it. This is what's known as "payment in lieu" of holiday.
However you can only do this for leave they are legally entitled to and haven’t used. If you offer more holiday than the law requires, you can't pay for this in cash unless it's something you've agreed to in their contract.
Keeping a record of how much holiday everyone's taken can be a bit of a headache, but it's really important so you can make sure they get the right pay when they leave.
Managing Partial Days of Annual Leave
It’ll often happen that an employee’s annual leave allowance results in fractions of days. This can happen for example when an employee leaves or joins part-way through the year - they could end up with an annual allowance of 10.23 days.
In the UK, it is customary for employers to round up these fractions to the nearest half or full day to maintain simplicity. This rounding up should always be up, and not down - it is against the law to lower an employee’s allowance, especially if they only get the statutory amount.
Pro-Rata Annual Leave: How to Work Out Part-Time Holiday
Part-time employees and workers are entitled to paid holiday in the same way as full-time employees. The only difference will be that part-time employees will be entitled to a proportion of their statutory annual leave based on the number of days they work in a week on average. This is called pro-rata (which just means 'a part of'). It's worked out by multiplying the full-time holiday (5.6 weeks) by the number of days they work each week.
For example, if someone works 3 days a week, they'd get 16.8 days holiday (3 x 5.6) each year. It's fair, it's equal, and it's a good thing to do. A lot of businesses use online calculators or HR software to help with the maths and to keep track of holiday, which is something you might want to consider.
We’ve dedicated a full article explaining how to calculate holiday entitlement for part time employees and workers, as the method can get a little complex depending on the type of contract the employee or worker is on.
FAQs
What is the Minimum Annual Leave UK Employers Must Provide?
The minimum annual leave employers must provide in the UK, otherwise known as statutory leave, is 5.6 weeks or 28 days for a full-time employee. However, this can include bank holidays, of which there are typically eight in a year.
When Can an Employee Request Leave?
Employees can request leave at any time, but it's usually subject to approval from their manager or HR department. Some companies have a policy requiring notice equal to twice the length of the requested leave.
Can an Employer Dictate When Leave is Taken?
Yes, employers can dictate when leave is taken, especially for operational needs or if a leave request is not feasible due to business demands. However, this should be done reasonably and employees should be notified in advance.
Can an Employer Cancel a Holiday Once It’s Been Approved?
Employers have the right to cancel pre-approved leave, but should avoid doing so unless absolutely necessary. If they do, they should provide the same amount of notice as the length of the holiday, and may need to reimburse the employee for any costs incurred due to the cancellation.
Onfolk Makes Managing Payroll and HR Simple and Stress-Free
The benefits of combined payroll and HR software is that you save a tonne of time with admin tasks relating to running your business all the while saving money on expensive accountants and HR consultants.
Onfolk is a modern, cloud-based platform built for startup founders and business owners employing a diverse team. Our platform combines a HR software (including time-off management!) as well as an almost fully automated payroll, so all your employee and pay data is in one place, accesible at all times.
As your employee data syncs automatically with your payroll, it takes 3 minutes every month to run. This also means you only need to keep one system updated, and your employee data and payroll are always free of discrepancies.
On top of being simple and fast to use, Onfolk provides you with other tools key to building your team effortlessly: time-off management, 2-click employee onboarding and offboarding, customisable task lists, integrations with Xero, Quickbooks and your pension provider, fully customisable people metric dashboards and reports, and so much more.
If you use Slack to communicate with your team, Onfolk integrates with Slack too - get reminders for employee birthdays and anniversaries, as well as who is joining soon or on holiday that week.
Running a business comes with so many hats - Onfolk takes care of payroll and people admin for you, so you can focus on growing your team and business instead.
