Should you pay staff for untaken holiday?
If your holiday year ended on 31 December, you may now be getting queries from employees as to whether they can receive a payment in lieu for any untaken leave. What are the rules?
Payment in lieu of holiday?
No matter how much statutory holiday someone is entitled to, the Working Time Regulations 1998 (WTR) are clear that it “may not be replaced by a payment in lieu, except where the worker’s employment is terminated”. Even if it seems like a good deal for both parties, allowing payment in lieu of holiday creates more problems than it solves. The most obvious downside is it’s an incentive for the employee to save holiday days. If someone would rather have the money than a day off, they are likely to avoid taking their annual leave, even if they need it. Undermining the law by offering pay in lieu of holiday risks their health and wellbeing as well as overall productivity.
Note. This rule only applies to statutory holiday allowance. For any holiday allowance you offer above the legally required 5.6 weeks, you can make a payment in lieu.
Can leftover holidays be carried forward?
The WTR are quite clear on this too, saying annual leave “may only be taken in the leave year in respect of which it is due” . However, this only applies to the four weeks of leave mandated by EU law and not the additional 1.6 weeks that make up the UK statutory allowance of 5.6 weeks or any extra non-statutory annual leave you offer.
You can allow 1.6 weeks’ worth of statutory holiday to be carried forward into the next year as well as any holiday sitting outside of the statutory allowance.
Related Topics
-
What can you learn from HMRC’s input tax toolkit?
You know that penalties can be charged on careless errors and many mistakes relate to input tax being wrongly claimed. How can HMRC’s input tax guidance help your business to claim the right amount?
-
Will new property tax erode tax efficiency?
You recently purchased a new trading premises for your business and plan to charge your company rent. As tax rates on property income are going up in April 2027, is this arrangement likely to be tax efficient?
-
Slash your NI bill by hiring an apprentice
Unless you’ve been living under a rock you will know that there are not enough young people in employment, education or training. The government offers several financial incentives to employers to hire young adults as apprentices. What’s involved and what could you save?