What is an annual leave policy and what should it include?

Everyone loves a holiday, but if all your staff disappeared to sunnier climes at the same time, it could cause some serious headaches for your business - so it’s important the process is managed properly.

Everyone knows holiday is good for staff productivity and morale, so it’s vital it’s administered properly and everyone takes what they're owed.

What is an annual leave policy? 

An annual leave policy lays out how much holiday staff are entitled to, how they have to apply for that holiday and how it will be administered to ensure fairness and impartiality across the workforce.

Why should your business have an annual leave policy?

An annual leave policy makes it clear what staff are and aren’t entitled to. It also outlines how holiday will be granted and any periods of business where holiday will be refused, for example, if one of your busiest periods is the run-up to Christmas. 

Having it written down avoids disputes down the line for both you and staff over who is entitled to what and when.

What you should include in your holiday policy

There are a number of things you should include to make sure your policy is comprehensive and covers all eventualities:

This section simply describes why you have an annual leave policy. It will also explain pro rata, service or general public holiday, so those definitions are clear for all users.

You may also wish to include in this section advice about situations where staff feel pressurised to work during annual leave and how this issues should be dealt with if it arises.

In addition, it might also include the consequences and disciplinary action if any member of staff deliberately tries to take extra leave.

Company holiday year

This is the date your holiday begins and ends. Many companies start theirs on January 1st and end it on December 31st, but you can choose any dates you like and may prefer to align it with your financial year if this runs differently.

Most companies have a policy which means staff must use up their entitlement within the holiday year, but you can decide to allow staff to carry this over into the next year if you like. If a worker gets 28 days holiday then, by law, they can carry over up to eight days. If they get more than that, then you could allow them to carry over any additional leave but you would specify this in your employee’s contract or handbook.

Annual leave entitlement

This section will form the body of your policy and explains exactly how much leave employees are entitled to. By law, all employees are legally entitled to 5.6 weeks paid holiday a year, so if they work a five day week that would be at least 28 days. 

Part-time workers are also entitled to 5.6 weeks paid holiday per year but because they work less hours a week they would be entitled to less holiday and it would be calculated on a pro rata basis. The same applies to staff working irregular hours.

Use our free online calculator to find out how much they are entitled to, or find out more about holiday entitlements in our guide. 

Procedure for requesting and take annual leave

This section will lay out the process for requesting annual leave – how they have to apply and to whom, through what system if you have an automated or online procedure and how much notice they have to give.

You can include provisions to the effect leave will only be considered granted after being reviewed by the line manager and the staff member receiving written confirmation.

This section will also lay the procedure if a staff member wishes to dispute any refusal as well as the policy if unauthorised annual leave is taken.

Effects of specific circumstances on annual leave entitlement

Finally, there are situations which will affect how much leave staff are entitled to and what happens in those instances.

Employees leaving the company

This section will include how your system is administered for those leaving part-way through the year. They will be entitled to take any holiday they have accrued of their statutory annual leave. How much they get will depend on how much of the year has passed.

If they have taken more of their entitlement than they have accrued, your policy with regards to this should also be laid out. You cannot take money from their pay unless prior written agreement is in place.

Pay in lieu of holiday can also be made instead of a departing employee taking that holiday.

Sickness before or during annual leave

Employees can self-certify for the first 7 days of sickness. After 7 days, they will need a doctor’s note. If it occurs just before or during holiday, they can take that time as sick leave instead.

Statutory holiday entitlement still accrues even if an employee is off sick. Any holiday that isn’t used because of sickness can be carried over into the next leave year.

You can't force an employee to take holiday entitlement in place of statutory sick leave. Employees however, can request to take their annual paid holiday entitlement in place of sick leave if they don’t qualify for sick pay.

Find out how Breathe can streamline your absence management admin today.