Carrying over annual leave: everything you need to know

Half of employees don't take all of their annual leave, with the average employee only taking 77% of their total leave, according to a Glassdoor study.

Although you might instinctively be pleased that you benefited from higher staffing levels than expected during the year, it's dangerous to create a culture where employees don't feel they can take leave, for whatever reason.

You might have considered allowing staff to carry over unused leave to the next leave year. But before you make that decision, you need to work out if you're staying within the law and, just as importantly, if you're making the right choice for your business.

Types of annual leave

Before we can talk about the legalities of carrying over leave, it's important to understand that there are different varieties of annual leave in the eyes of the law.

Employment contracts talk about annual leave as if it's all the same — in the UK, it's usually 5.6 weeks or 28 days for full-time workers.

But when you start to delve into the regulations surrounding annual leave, you'll find that there are three different types:

• EU statutory leave (four weeks). Under EU law, all full-time employees are entitled to 20 days of paid leave each year. This type of leave must follow EU rules. We don't know what effect Brexit will have on this leave.
• UK statutory leave (1.6 weeks). On top of the EU statutory leave, UK employees get another eight days of paid leave every year. This is often used to cover the eight bank holidays, but different businesses have different rules on whether or not bank holidays must be taken as paid leave. This type of leave doesn't have to follow EU rules.
• Contractual leave (variable). Finally, employers may choose to give staff additional leave. The number of days and the rules surrounding this extra leave are entirely up to the employer. For example, companies may offer additional contractual leave for every year of service an employee has worked.

These three types of leave are governed by different rules, particularly when it comes to carrying over leave.

So, is it legal to carry over unused annual leave into a new leave year?

OK, let's look at each type of leave in turn.

EU leave, i.e. 20 days' worth of leave each year, usually cannot be carried over. It must be used during the leave year.

There is an exception: if the employee is on sick leave and doesn't have the chance to use their leave, they should be allowed to carry over their remaining leave.

Unused UK leave (eight days of leave) can be carried over into a new leave year — but only if agreed in writing (usually in an employment contract).

Unlike the EU leave, however, if the employee can't take their UK leave due to sickness, there's no guarantee it can be carried over.

It's entirely up to the employer whether to allow contractual leave to be carried over or not, and if there are any exceptions for sickness.

Should we allow 'carry-over' at our business?

Let's take a look at the benefits of allowing employees to carry over some, or all of their unused leave.

1. Avoid the annual leave rush. As the end of your leave year nears, most staff will try to use up their remaining leave. This is huge hassle to manage and often leaves you with low staffing levels at critical times of the year. By allowing staff to carry over some of their leave, you can slow the annual leave rush and its impact on your business.
2. Reduce the impact of significant events. If an employee knows they have significant life event in the new leave year (moving house, becoming a parent, getting married), they'll appreciate being able to save some of the current year's leave to give them more time off next year. Otherwise, they'll know they'll have to dedicate most of next year's leave to a single event, or even ask for a period of unpaid leave.
3. Promote a culture of flexibility. Generous carry-over leave policies show employees that you value flexibility, and trust them to manage their leave in the way that works best for them. This type of culture can help with employee engagement and overall job satisfaction, as well as recruitment.

But there are drawbacks - both practical and in terms of employee wellbeing.

1. Employee burnout. With no need to use up leave, employees may end up taking very little holiday during the year. Regular paid leave is important to employee health and wellbeing, and therefore, productivity at work. By asking employees to 'use it or lose it', you increase the chance that they'll take time off.
2. Less notice of leave. If employees know that they need to use all their leave before the end of the year, they'll start figuring how and when to use it further in advance - at least in theory! Conversely, when there's no rush for employees to take leave, your leave calendar won't populate so quickly. If you'd rather receive leave requests in plenty of time, allowing carry-over isn't going to help with that.
3. Unpredictable new leave year. Assuming employees each carry over a few leave days into the new year, suddenly you're facing more than a 10% increase in paid leave in the new year. That makes the year's staffing levels more unpredictable, and you'll need to cope with fewer staff on hand throughout the year.

Is there any middle ground?

There are a few ways to compromise between allowing no carry-over and implementing a generous carry-over policy:

• Only allow a very limited number of days to be carried over (say two or three)
• Require all carried over leave to be taken within the first month or two months of the new leave year
• Consider whether leave can be carried over on a case-by-case basis

Final thoughts

However you decide to approach carrying-over leave, it's crucial to make it a formal policy — and if you want to make changes to existing employment contracts, they must be agreed by both parties.

If you're still unsure how to approach carry-over, speak to your employees and managers. Take their opinions into account when amending your leave policy.