COVID-19 and annual leave: Must we allow staff to ‘carry-over’ holiday?

What are the usual rules on the ‘carry over’ of annual leave?

The 5.6 weeks of statutory holiday available in the UK is split into two parts; the 4 weeks annual leave prescribed by EU law and the additional 1.6 weeks available under UK law.

Generally, the 1.6 weeks can be carried forward once, into the following leave year if a written agreement exists between the worker and the employer.

However, the 4 weeks cannot usually be carried over into future leave years, so employers must facilitate these weeks being taken within the relevant leave year (‘use it or lose it’). The exception to this is where an employee cannot take annual leave due to them being on maternity leave or sick, where the employer must still allow the 4 weeks leave to be carried forward. Where annual leave is varied forward due to sickness, it should generally be taken within 18 months of the end of the leave year in which it originally fell due.

How were the rules changed in response to COVID?

On 27 March 2020, the government passed emergency legislation to allow businesses extra flexibility to respond to the pandemic and to protect workers from losing their statutory holiday entitlement. The Working Time (Coronavirus)(Amendment) Regulations 2020 enable workers to carry holiday forward where the impact of COVID-19 means that it has not been ‘reasonably practicable’ to take it in the leave year to which it relates. Where it has not been reasonably practicable for the worker to take some or all of the 4 weeks holiday due to the effects of COVID-19, the untaken amount may be carried forward into the following 2 leave years.

It remains the case that the additional 1.6 weeks leave can be rolled over once, if there is a written agreement between employer and employee. If any additional, contractual leave is offered, the employer and employee will usually agree what will happen to this (in the contract and/or annual leave policy).

When do the new rules expire?

It is a common misconception that the emergency carry-over provisions will cease to apply after 2 years (I.e. on 27 March 2022). However, this is not the case. The right to roll over 4 weeks annual leave for 2 years appears to be ongoing, where COVID is the reason that it was not ‘reasonably practicable’ for the employee to take it. There is no ‘expiry date’ in the regulations, and they do not specify if/when the 2 year carry over provision will cease to apply. So, the ability to carry over leave appears to be an indefinite right until COVID is no longer an issue and/or the amendment Regs are repealed.

What does ‘reasonably practicable’ mean?

The law allows holidays to be carried over for two years if it was ‘not reasonably practicable’ for the employee to take it ‘as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)’. This is very broad and seems to encompass almost any COVID related situation (e.g. self-isolation, increased work demands due to COVID, staff shortages etc).

Helpfully though, government guidance clarifies that employees who were furloughed are unlikely to need to carry over leave as, in most cases, annual leave could be taken during the furlough period. However, if the employer could not afford to pay full pay for annual leave during furlough, this may mean that it was ‘not reasonably practicable’ for the employee to use up their leave. The government guidance suggests that carry-over of leave should be permitted in these circumstances.

Can we specify how and when carried over leave must be taken?

The regulations are silent on this point, and do not specify how and when carried over leave must be taken. However, government guidance states that, where leave is carried forward, it is best practice to give employees the opportunity to take such holiday at the earliest practicable opportunity. This suggests that it would be best practice for an employer to facilitate holiday to be taken in the first year after the holiday has been carried over wherever possible.

As a rule of thumb, the government Guidance suggests that employees should be allowed to take holiday first from the entitlement that expires first. For example, if an employee had carried over leave once, due to COVID, they should take their ‘normal’ leave for that leave year before the ‘carried’ over leave is taken (because the latter lasts for two holiday years). However, if the carried over leave is carried over a second time into a subsequent holiday year, it should be used before the employee’s ‘normal’ leave as it will shortly expire. This may not always be easy to determine in practice, and we are happy to assist if you are struggling.

Can we refuse to allow an employee to carry over leave?

Possibly yes, but only in certain circumstances. You will need to ensure that a robust paper trail has been laid first. You must be able to show that it was reasonably practicable for employees to use up all their annual leave despite COVID, and that the pandemic did not adversely impact this. Can you demonstrate that you have pro-actively, clearly and consistently encouraged employees to use up annual leave, and that you have agreed to such requests? Think carefully about any barriers that may have prevented employees from taking annual leave despite your encouragement, such as significant spikes in activity, or staff shortages that may have placed pressure on particular teams or departments.

Be mindful that employees may argue that they have been unable to take leave due to the personal impact of covid on their lives, rather than employer policy (e.g. multiple periods of self-isolation, illness etc.) so it may be advisable to build in some discretion to consider individual circumstances.

Can we ‘buy out’ an employee’s leave instead of allowing them to carry it forward?

No. In our view, it is not possible to ‘buy out’ the employee’s statutory right to carry forward leave.

Carried over leave is subject to the usual rules around payment in lieu. An employer must facilitate the employee taking their annual leave, and not replace it with a ‘payment in lieu’.

However, if employment is terminated, the employee must be paid for any untaken leave. This will include any leave carried over under the COVID-19 exemption, as well as any leave the employee has accrued during the relevant leave year.

Our contractual terms still state that carry-over of the 4 weeks annual leave is not permitted. Do we need to change them?

No. There will rarely be a need to make any changes to your contractual terms to facilitate COVID-related carry-over of leave. If you decide to permit carry over, it would simply be a case of confirming that, despite the contractual terms, leave can be carried forward (and narrating any additional terms and conditions attached to this). It is important to make clear that no changes have been made to your contractual terms.

If you decide not to allow carry-over, because you are satisfied that staff have had ample opportunity to use up leave despite COVID, you may wish to reiterate that current contractual terms relating to carry-over remain in place and explain the reasons for this.

We know that carry-over of leave is likely to be more problematic for our operations team than for our support staff. Can we treat these two groups differently?

It is always preferable to try to aim to apply a consistent approach across the board if you can. There is always a risk that the demographic make-up of a particular team or department may give rise to arguments that employees with a protected characteristic have been placed at a disadvantage. For example, if your operations staff are predominantly female, it may potentially be discriminatory on gender grounds to refuse carry-over, where this is permitted elsewhere in the business. If you want to apply different approaches to different teams you may do so, but it is important to be clear on the rationale for any difference in treatment and to record this carefully.