Unused Holiday Pay

All employees are entitled to a particular number of paid annual holidays. But what happens if employees have unused holidays at the end of the year? Will they still be paid for these dates?

Employers should be aware of how to deal with unused holidays and pay for their staff. If handled wrong, you might end up owing employees further holiday entitlements - leading to all kinds of legal matters for the business. 

In this guide, we’ll look at what unused holiday pay is, what the laws are, and how to ensure employees are paid properly for their time off.

What is unused holiday pay?

Unused holiday pay is the concept of employees not using their annual leave rights - despite being paid to do so.

Most employees in the UK are entitled to 5.6 weeks of paid holidays per year. This adds up to around 28 days of paid annual leave for those who work five days a week.

In some cases, employees might choose not to use their paid holidays. For example, they feel pressured to take leave due to their workload. If an employee is entitled to paid annual leave, you should remind them to use them before they expire.

What is the law on paid holidays in the UK?

All employees are legally entitled to accumulate paid holidays from their first day of work. They’ll usually take their leave days between dates set by the company. For example, between January and December.

The dates will ultimately depend on your company rules. Remember, pay for unused holiday shouldn’t affect other forms of leave; like statutory sick leave or shared parental leave. 

What paid holiday rights do part-time workers have?

Part-time workers have similar paid holiday rights to full-time workers. They’re still entitled to 5.6 weeks of paid leave. However, this is calculated based on their average working week (or their ‘pro-rata’).

For example, if a part-time worker works 4.5 days a week, they should receive around 25.2 days of leave per year. (4.5 x 5.6 = 25.2). 

Most employers round these numbers up, but you cannot round it down. Also, whilst they’re entitled to their own statutory minimum, many employers offer more through contractual terms.

Can you use a ‘use it or lose it’ policy for paid holidays?

Yes, a lot of companies use a ‘use it or lose it’ policy when it comes to paid holidays. This is when employees are encouraged to use all their annual leave entitlement before that leave year - or risk losing out on them. 

If they exceed the deadline, the employee loses out on taking that day off - and the pay it comes with. Some companies do allow employees to carry over leftover holidays for the following year. 

However, it’s ultimately up to employees to request their leave within reasonable times. Employers should encourage them to take their breaks efficiently. Regular time-off allow employees to switch off from work - taking care of both their mental and physical health.

How to ensure employees use their paid holidays properly

As employers, it’s your job to ensure employees work in safe and secure conditions. And this includes making sure employees take days off from work. 

Not only is it good for their physical and mental health, it’s also good for the wellbeing of them and the company. Let’s take a look at ways to ensure employees use their paid holidays in the best manner:

Create a method for submitting absences

The first thing employers should do is create a method for their staff to submit their absences. This could include sending an email; or submitting a request through an absence software.

It’s best to deal to holiday requests in ways that benefit the individual and the company.  But, remember employees are legally entitled to them, so it’s best to be accommodating.

Outline the holiday rules

The next step to take is to outline your company’s rules on taking holidays. These should be written in a policy and made available to all staff members. 

If you have staff on different holiday rights, ensure these differences are made clear. For example, a full-time employee may have different statutory holiday rights compared to a part-time worker.  

Highlight your ‘use it or lose it’ policy

If you decide to introduce a ‘use it or lose it’ policy, make sure the rules are made clear to all employees. They should be aware of when their paid holidays start and end; i.e., January to December.

Alternatively, many companies allow employees to carry over their holidays for the following year if left unused. Just be aware of those collating ‘too many’ leave dates!

Use absence trackers

Most companies will use some sort of software to track employees attending work. However, these can also highlight their leave rates, too. Use an unused holiday pay calculator to ensure they’re using their leave rights efficiently.

Encourage those who haven’t used their paid holidays in a while. Whilst it’s their choice, highlight the benefits; like, good personal wellbeing. Remind them that the company can still run efficiently even if they’re off for a few days.

Include holiday terms in contracts 

It’s crucial for all holiday terms to be included in employment contracts. This isn’t just for paid holidays terms; it should also include other forms of leave.

Remember, employees take leave for all kinds of reasons. And their entitlements may differ from colleague to colleague. For example, between full-time and part-time employees. Ensure individuals have the right holiday entitlements included in their individual contract. 

Do employers have to provide unused holiday pay when leaving a job?

Yes, employers should provide unused holiday pay to anyone leaving their job. (This shouldn’t be mixed up with Pay in Lieu of Notice or PILON).

Individuals are paid amounts from their final leave year. You can’t force employees to use their unpaid holidays on termination.

Do employers have to provide unused holiday pay on redundancy?

Yes, employers must provide unused holiday pay to anyone being made redundant.

This amount is in addition to any redundancy pay owed to the employee in question. Remember, you must provide what they are owed – no matter how much it may add up to. Missing payments could lead to potential compensation claims.

Get expert advice on unused holiday pay with Peninsula

When employees feel supported and engaged during work, it encourages a happier workforce. It helps reduce work-related burnout, unauthorised absences, and overall staff turnover.

Peninsula is here to provide expert advice on unused holiday pay. We offer 24-hour HR advice - helping you deal with all payment entitlements. You can also download our free annual leave and holiday pay guide for further information.

Want to find out more? Contact us on 0800 028 2420 and book a free consultation with an HR consultant today.