How to handle holiday leave carryover

We are reaching the end of the calendar year. This means that you may be facing the perennial problem of what to do with an accumulation of unused holiday allowance across the business.

If this is your situation, you are not alone: according to a recent survey of around 2000 workers by Glassdoor, (reported on personneltoday.com), around 40% of employees take a maximum of just half of their annual leave entitlement in any one year. The average amount of holiday taken each year was 62%; only 43% of workers took between 91-100%, and an incredible 1 in 10 took just 20% of their allowance.

So, what should you do if you find yourself in this predicament? Roll the holidays over and risk staff cover issues next year? Take a hard line and expunge unused holidays and potentially face employee relations issues? Or adopt a hybrid approach?

Whatever approach HR professionals take, it’s recommended that the policy is established and communicated to employees in advance via the employee handbook or employment contract.

But let’s say you find yourself in a situation without a written holiday carryover policy, then you’ll need to rely on statutory provisions.  Before the pandemic, these were:

• the 4-week statutory holiday entitlement, (Regulation 13 Working Time Directive 1998), could not be carried forward from one leave year to the next unless the worker is prevented from taking it due to absence or maternity leave.
• The extra 1.6 weeks (Regulation 13A) can be carried forward one leave year (but no further), through an agreement between workers and employers.
• Any additional contractual entitlement can be carried over if there is a relevant agreement e.g., it’s been set out in the employment contract, a collective agreement, or the employee handbook.

Even if you do have an HR policy or some recognised custom and practice in this area, you’ll need to check the legal status as there have been updates due to the pandemic, which may have slipped under the radar given the upheaval of recent times. We have outlined the key updates from this legal summary by ACAS.

• In 2020, the government introduced a temporary law permitting employees to carry over up to 4 weeks of holiday entitlement into their next 2 holiday years
• The law applies to any holiday the employee or worker can’t take due to Covid-19, which could be because they were too sick to take holiday themselves or they’ve not been able to take paid holidays as they had to continue working due to covid-19 disruption.

So, HR professionals, it’s worth checking that your holiday carryover policies (or custom and practice) reflect this increased flexibility, or else your people managers may be breaching the law when handling this issue.

So, with the legal picture clear, it’s time to look at those holiday leave carry-over days which are at the discretion of the employer. These are:

• the remaining 1.6 weeks of statutory annual leave
• holiday that’s more than the legal minimum

By law, the employer can decide how much of this leave is carried over. People managers should be encouraging staff to log on to their HRIS (Human Resources Information System) and book most or all of their leave allowance within the leave year. Few would dispute this, as the benefits to well-being and productivity is well documented.

Use it or lose it 

The simplest way to encourage staff to use their contractual leave entitlement is with a use-it-or-lose-it approach. Stipulate within the employment contract or handbook that employees will not be able to carry unused holiday entitlement forward to the next year, beyond statutory requirements. However, this approach is typically seen as too much of a hard-line approach, and most employers allow employees the flexibility to carry over 5 days which must be used within the first quarter of the following year or be forfeited entirely with no payment in lieu.

In conjunction with this, there are more positive ways to encourage staff to take their holiday allowance. Speaking in the Guardian recently, organisational psychologist Julia Knight explains the bizarre cognitive dissonance of people not taking free paid holiday allowance that’s given to them.

She argues that when it comes to holiday allowance people are swayed by cultural norms as much as legal entitlements. If an employee perceives the unwritten rule to be that you shouldn’t take your full allowance because you will leave your colleagues in the lurch, then many employees won’t. This kind of explained why 16% of respondents to the Glassdoor survey felt guilty for using their holiday allowance!

This form of presenteeism can be tackled top-down by neutralising those unwritten rules and encouraging leaders to set good examples by taking their own full holiday allowance. They should be open about this, publishing it on a team calendar or the company’s HR system.

As well as being reflected in the behaviour of your company influencers, this message of taking full holiday allowance should be repeatedly expressed in your values statement, well-being policy, holiday policy etc, to encourage compliance.

You could also retrieve a pre-emptive unused holiday allowance report from your HRIS at the start of Q4, and use it to nudge staff to take holiday before year-end. Many HR systems will be able to do this automatically.

These actions will significantly increase the all-around well-being of staff and reduce or eliminate the year-end scrum around using unused holiday allowance.