Annual holidays can be taken at any time agreed between the employer and the employee. Employees must be given the opportunity to take at least two of the four weeks’ annual holidays continuously.
Timing of payment for annual holidays
Employees are entitled to receive their pay for annual holidays before the holiday starts, unless the employer and employee agree that they will be paid for annual holidays in the normal pay period that relates to the period that the annual holidays are being taken. If the employer and employee agree that the employee will be paid for annual holidays in their normal pay cycle, this should be recorded in writing, usually in the employment agreement.
Taking holidays in advance
If their employer agrees, an employee may take annual holidays in advance (ie before they become entitled to the holidays after their annual holiday anniversary).
If an employee takes annual holidays in advance, they get paid the greater of their ordinary weekly pay (at the beginning of the annual holiday), and their average weekly earnings (for the 12 months just before the end of the last pay period before the annual holiday, or since their start date with the employer, if the employee has worked for the employer for less than 12 months).
Employers should consider the benefit to the employee of taking four weeks annual holidays each year for rest and recreation before agreeing to the employee taking annual holidays in advance because taking annual holidays in advance will mean that the employee has less annual holidays available to take for the following year.
Employment agreements
The annual holidays provided for in the Holidays Act 2003 are a minimum, an agreement that references to less than four weeks has no effect but an employment agreement may increase entitlements to annual holidays e.g. by providing five weeks annual holidays each year.
When employment ends
Annual holidays don’t expire if you don’t take them; the employee remains entitled to them until they take the holiday, they are cashed-up (in limited circumstances) or their employment ends.
When an employee leaves their job, they are paid 8% of their gross earnings (which includes payment for any entitled annual holidays) since they last became entitled to annual holidays, less any amount paid to them for annual holidays taken in advance or paid on a pay-as-you-go basis.
In addition, when an employee leaves their job any entitled annual holidays they haven’t taken are paid at the rate of the greater of ordinary weekly pay as at the date of the end of the employee’s employment or average weekly earnings during the 12 months immediately before the end of the last pay period before the end of the employee’s employment.
Read more about calculating leave and holidays in final pay.
Impact of other types of holidays and leave
Some types of holidays and leave may have an impact on or be impacted by annual holidays.
Accrued annual holidays
The concept of accrued holidays is a useful tool for employers to use as an estimate of their financial liability for annual holidays. They can also be useful for employees to see as an estimate of their progress towards becoming entitled to their four weeks annual holidays (at their anniversary date). It is not a concept found in the Holidays Act 2003.
It can be confusing for employees to see an accrued annual holidays balance because:
- employees are not entitled to take accrued holidays and
- the employee’s annual holidays entitlement after their next anniversary date for annual holidays may be different from their accrued holidays balance just before their anniversary date. This is particularly the case if the employee’s work pattern has changed throughout the year and the accrued holidays have not been recorded in weeks or the accrued balance hasn’t been updated to reflect the work pattern change.
If an employee askes to take annual holidays in advance, some employers use the employee’s accrued annual holiday balance as the basis for deciding:
- whether to agree to the employee taking any annual holidays in advance
- how many weeks’/ days annual holidays in advance the employee can take.
Employers and employees having problems with annual holiday entitlement can contact us for help.