The definitive guide to annual leave for UK businesses

Annual leave typically refers to the statutory leave that employees are entitled to, but it can also cover additional leave and bank holidays (if they’re included in an organisation’s leave entitlement).

Statutory annual leave is the minimum amount of leave that UK employers must grant their employees each year. Almost all workers in the UK are entitled to 28 days (or 5.6 weeks) of annual leave. 

Employers can choose to offer more than the statutory minimum of 5.6 weeks. An organisation might increase the annual leave entitlement by several days or choose to be more flexible with an “unlimited” policy. You are also free to introduce other types of leave that increase the entitlement, like duvet days. 

In the UK, there are eight bank holidays each year, and employers can choose whether to include these as part of the 28 days of statutory annual leave or not. 

If bank holidays are counted as part of an employee’s statutory leave, they are left with 20 days of leave to take on top of the bank holidays. Some companies offer bank holidays in addition to the statutory entitlement, giving employees more time off and flexibility over when to take it.

You can also choose to allow your employees to work on bank holidays in exchange for taking leave at another time of year. This can be an important element of your diversity, equity, and inclusion initiatives, as it allows employees to take time off to celebrate the holidays that are important to them.

Employees are entitled to at least 5.6 weeks of annual leave per year. This means that to calculate the number of days of leave they’re entitled to, you need to multiply the number of days they normally work in a week by 5.6. For a full-time employee, this adds up to 28 days.

Part-time employees are also entitled to 5.6 weeks of annual leave, calculated on a pro-rata basis. For example, an employee who works two days a week is entitled to 11.2 days of paid leave each year (5.6×2).

When an employee has a fraction of a day of annual leave to take, their employer is not allowed to round this down to the nearest whole number. However, they are also not required to round it up to the next whole number either.

Instead, employers should speak with their employees about how they can use partial holiday days. For example, an employee with 3.5 days of annual leave to take may agree to take a half-day off as part of their leave.

There are certain rules that employees and employers should follow when it comes to requesting, approving, and denying annual leave to ensure that employees can take their full entitlement.

Employees can request annual leave at any time, but they should follow the “general notice period” for booking time off. In general, employees should give notice of at least twice the period of leave they want to take, plus one day. For example, for a week of leave they should submit a request at least two weeks (+ 1 day) in advance. 

Employers can decide when employees are restricted from taking annual leave in some circumstances. 

Employers have the right to:

• Tell employees to take annual leave on specific days, such as bank holidays or days when the business is closed. In this case, they must give the employer notice of at least twice as long as the leave they want to impose.

• Impose restrictions on when leave can be taken, for example by not allowing anyone to take time off during busy periods. Any restrictions should be laid out clearly in your employee handbook.

An employer can refuse a leave request or cancel leave that has already been approved, as long as they give notice of at least the period of the leave plus one day. In reality, it’s best to avoid this: cancelling already-approved leave can damage employee relationships and trust.

There will be times where managing annual leave is less straightforward — especially if you work in a seasonal business with busy and quiet periods, or need to juggle the requests of lots of people at once. 

Here are some common annual leave challenges and how to approach them: 

Employees can sometimes ‘carry over’ part of their unused annual leave into the next year. Whether or not this is possible should be detailed in their employment contract.

If a worker is entitled to the statutory minimum of 28 days of leave, the maximum they can legally carry over into the next year is eight days. If they get more than 28 days’ leave, you can choose to allow them to carry over any additional leave as well.

Employers must pay departing employees for any unused leave that they’re unable to take before they leave the business. If an employee leaves having used more than their leave allowance, you can deduct this from their final pay.

Some employers choose to use a holiday accrual system, meaning that employees ‘accrue’ (build up) annual leave from their first day of work. New employees often aren’t permitted to take annual leave in the first year until they have ‘accrued’ it.

You can calculate how much leave employees accrue each month by dividing their total annual leave by 12. For example, a full-time employee who gets the statutory minimum leave is entitled to 28 days of annual leave. This is accrued at a rate of 2.33 days each month (28÷12).

This means that a new employee would be entitled to seven days of leave (or a quarter of the annual allowance) after three months of work.

Employees still accrue annual leave if they’re on sick leave or statutory parental leave. An employee can also take leave while they’re on long-term sick leave, meaning they will receive 100% of their normal salary for the period of their leave, rather than the amount they are entitled to under statutory sick pay.

Your leave policy outlines the rules and procedures for taking leave in your organisation. It should clearly explain the rules, how to request leave, and the criteria for approving or denying leave. 

A leave policy should:

• Provide clear guidelines on leave entitlements and procedures

• Ensure compliance with legal requirements

• Create consistency and fairness in managing employee absences

• Support workforce planning and business continuity

Key elements to include:

1. Types of leave: Annual leave, sick leave, parental leave, etc.

2. Entitlement: Amount of leave employees are entitled to.

3. Accrual and carry over: How leave is accrued and rules for carrying over unused leave.

4. Request process: How to request leave and required notice periods.

5. Approval process: Criteria for approving or denying leave requests.

6. Leave during notice: Rules for taking leave when an employee resigns.

7. Special circumstances: Handling leave during busy periods or emergencies.

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Your annual leave policy sets out the rules and how to apply them, but it’s often the systems around the policy that influence the employee experience.

Here’s how to manage annual leave more effectively: 

• Make it easy to request time off: Give employees access to a portal where they can see their leave balance and make a request, without sending an email to their manager.

• Encourage employees to use their annual leave: Enable automatic reminders to employees that aren’t using their leave, and promote the use of leave rather than carrying it over into the next year.

• Manage leave fairly across the organisation: Use your policy and processes to ensure fairness and consistency, so employees can expect the same experience no matter who their manager is.

• Offer training to managers: Give your managers access to online training, short courses, or workshops that cover leave entitlements, types of leave, and how to handle scenarios, so they’re more confident in applying the policy correctly.

• Revisit your policy regularly: Review your leave policy at least annually, and again when legislation changes, so you’re certain that it’s legally compliant and aligned with your business goals and culture.

• Use HR software designed for the UK: Choose a HR system with automatic calculations and workflows built for UK employment legislation, like Personio.

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Personio’s end-to-end absence management system makes it easier to request and approve time off, saving your team time.

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Hand the annual leave calculations, tracking, and compliance checks over to Personio, so you can spend more time on the tasks that need your expertise. 

Personio is an all-in-one HR system that upgrades your people operations for now and the future, including leave management software that can manage holiday requests and track every kind of leave (from emergencies to sicknesses and bank holidays), alongside all of your other core HR processes.

HR teams that use Personio can: 

• Automate absence management

• Create custom absence policies

• Allow employees to request time off with self-service access

• Save time with one-click approvals

• Give employees easy access to leave records and balances

• View absences at a glance across teams or the organisation

• React proactively and analyse trends with data-driven reports

UK employers need to keep records of annual leave and holiday pay, including: holiday taken, holiday carried over, holiday pay, and payments in lieu of annual leave. These records should be stored securely and kept for a period of six years.

Eligible employees are paid while they’re on annual leave. Employees and workers are entitled to their normal pay while on annual leave, and this includes full-time, part-time, and agency workers. 

Many businesses in the UK choose to align their leave year with the financial year, which runs from April to the end of March. Other common options include from an employee’s start date, or from the start of the calendar year. 

Employees that start part-way through the leave year are entitled to any annual leave they’d normally receive from their start date onwards. Their holiday allowance is typically pro-rated to align with the number of weeks or months they have remaining in that year, or accrued on a monthly basis so they build up holiday entitlement over time.