Holiday - Use it or lose it

January – the start of the calendar year and for many businesses, the start of a new holiday year. For many other businesses, operating an April to March holiday year, it may be the last quarter of your holiday year. And for a small proportion of businesses, you will be somewhere between the first quarter and the last quarter of your holiday year.
Regardless of when your holiday year runs to and from, it is good practice to remind your employees of the benefits of taking regular holiday. January is a particularly good time to do this when it is the start of your holiday year, but it is just as important for employers in their last quarter, as you should ensure that your employees, wherever possible, take at least all of their statutory holiday entitlement within the current holiday year.
Many employers apply a ‘use it or lose it’ policy when it comes to the taking of holiday and employers are under a positive duty to encourage employees to take their holiday.
Employers generally require their employees to use their whole holiday allowance during a relevant holiday year, as they won’t be able to carry over their statutory entitlement to the following year (save for in specified circumstances, such as in relation to periods of long-term sickness absence, maternity leave or other family leave or where the employer has failed to give an employee a reasonable opportunity to take leave). In these circumstances, untaken holiday may carry over for up to 18 months. This approach is lawful under the Working Time Regulations 1998.
Some employers may allow a small number of days‘ holiday to be carried over to the next holiday year. This should not be encouraged however, and can only be done if an employee has taken all 28 days of their statutory holiday entitlement. If it is permitted, it would be sensible to set a date within the first three months of the next holiday year by which the carried over days must be taken, and if not taken, are lost.
A European ruling in 2019 determined that holiday which an employee has not taken during the relevant leave year should not automatically be lost if the employer has not diligently brought the ‘use it or lose it’ principle to the employee’s attention. We would therefore strongly recommend that employers diarise to remind their employees at regular points during the holiday year to take all of their holiday entitlement, making it clear that if they don’t, they will lose it.
While many contracts of employment make it clear that holiday can’t be carried over from one holiday year to the next, and while many holiday policies reiterate this position, the 2019 European ruling suggests that this alone may not be enough.
There are very good and well-documented reasons for this. Regular breaks from work are vital to ensure good mental health and physical well-being. Holidays give employees the chance to rest, to disconnect from any workplace stresses and strains, to re-charge their energy levels and spend time doing things that they enjoy; exploring new places, re-establishing connections and catching up with friends and family, trying new experiences, spending time enjoying hobbies or simply enjoying a few days of space when they don’t have to stick to a rigid routine and may step away from the increasingly fast paced world in which we live. A break from the work routine can revitalise, give a real mood-lift and aid increased productivity.
How to achieve this
Employers should ensure they give their employees the opportunity to take their annual leave by ensuring there is enough cover for their work to allow them to take it and by giving their employees access (eg via an intranet or HR system) to their holiday entitlement so that they know how much they have taken and how much remains.
Employers should actively encourage their employees to take their holiday and to space their time off across the holiday year. This could be through notices in your workplace reminding employees to take their leave, reminders in team meetings, and/or monthly/quarterly communication to employees of their remaining holiday entitlement.
At the start of the last quarter of the holiday year, if not before, employers should inform their employees that any leave not taken by the end of the holiday year may be lost. It is sensible to include this in your Holiday Policy and also in any reminders you issue. One of the main reasons for doing this is to avoid the situation where a large number of employees wish to take holiday at the same time, often shortly before the end of the holiday year, making it almost impossible for the employer to cover work commitments. Holiday years ending in December often lead to a mass exodus from the workplace during December. This would be a problem at any time of the year, but for some businesses, December may be their busiest time.
Employers should also consider whether there are particular times of the year when employees are not permitted to take holiday, due to the business being particularly busy. If that period falls within the last quarter of your holiday year, that could present real problems, with less time available for employees to use up their untaken holiday.
Reminder: Untaken holiday cannot be replaced with a payment in lieu unless an employee is leaving employment.

Blog by Lynn Marlow