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CAN WE PAY AN EMPLOYEE IN LIEU OF UNTAKEN HOLIDAYS AT THE END OF THE HOLIDAY YEAR?

06/12/2016

It is that time of year again, when many companies come to the end of their holiday year and on checking, find that some employees have not booked / utilised all of their holiday entitlement.

Sometimes employees, who have not used their full annual leave entitlement, will request payment in lieu of holidays that have not been taken. Often this will seem like an attractive proposition for both the employer and the employee. From the employee's perspective, this will lead to additional income and from the employer's perspective, there is no need to arrange for cover for the individual as they will not be taking holiday. This can be particularly attractive to an employer in very busy periods.

You should however note that the purpose of the Working Time Regulations granting employees a statutory minimum number of weeks' paid holiday in the year is to enable the employee to benefit from paid time away from the workplace. For this reason, the law does not allow the employer and employee to contract out of the statutory minimum holiday entitlement and receive a payment in lieu of untaken holiday. The exception to this is where the employment relationship is terminating. In these circumstances, if the employee has taken less leave than has been accrued in the portion of the year in which they have worked, the employer is required to make a payment in lieu of accrued holiday upon termination of the employment.

If you have adopted a ‘use them or lose them' policy, you are not obliged to police employees to make sure that they avail themselves of their full entitlement and therefore, they will lose any entitlement not taken by the end of the year. However, it is worth noting that if an employee is unable to take statutory holiday in the leave year to which it relates for reasons outside their control (for example they are on long term sickness absence or maternity leave), then they should be allowed to carry this leave forward to the next leave year.

Fiona Haworth. You can contact Fiona on fiona@practical-hr.co.uk

If you feel that you need guidance or advice on this matter, please call Practical HR on 01702 216573 or email Fiona on the above.


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