Carrying over annual leave: here’s what you need to know

An employee’s holiday allowance forms an important part of their compensation package. It can entice new talent to a business, or help retain others who are happy with the annual leave agreement they have.

In addition to the number of holiday days given, how employers handle annual leave carry over – the process of taking unused leave days into the next calendar or financial year – is also a policy that will be of interest to staff.

This article will explore what a carry-over annual leave policy looks like, how to implement one at your business, and the benefits and risks it entails.

What does it mean to carry over annual leave?

Carrying over annual leave means taking unused annual leave allowance from one leave year into the next, so it can still be used.

This isn’t a compulsory policy at all businesses, and is only effective if there’s an agreement that allows it and a policy that outlines how it works at your company, such as in your employment contracts.

Beyond meeting the legal requirements outlined below, it is up to the business to decide and outline how much holiday can be carried over, when it can be used and so on.

Instances when holiday carry-over should be implemented outside of a company-wide policy include:

• When an employee is on long-term sick leave
• If an employer fails in their legal obligation to let an employee take all the annual leave they’re entitled to in one year
• When an employee can’t use their holiday entitlement because they’re on a type of statutory leave, such as maternity leave

What are the employment laws and rules of carrying over annual leave?

There are some laws and rules to be mindful of before implementing this policy at your business. As of January 1 2024, new statutory rules on carrying over holiday have been enforced. These relate to:

Maternity/family leave and sick leave

Employees are entitled to carry over 5.6 weeks of annual leave into the following leave year when they haven’t been able to take all or part of their annual leave because they’ve been on statutory leave, like paternity or maternity leave.

Employees are also entitled to carry over four weeks of holiday if they’ve taken over four weeks’ of sick leave in any leave year. The annual leave carried over must be taken within 18 months of the end of the original leave year impacted.

Employer failure to allow staff to take annual leave

Allowing an employee to take their annual leave is really important – and any effort by an employer to prevent this goes against employment laws. Doing this also means employees will have a legal right to carry over their annual leave, even if you don’t have such a policy in place.

Employers must:

• Recognise an employee’s right to annual leave
• Give employees reasonable opportunity to take the leave – and encourage them to do so
• Make sure your employees are aware that any leave not taken by the end of the leave year that can’t be carried forward will be lost

These simple actions will prevent any legal issues related to annual leave allowance at your business.

Read more: Employer obligations for paying overtime

What are the benefits of allowing staff to carry over annual leave?

Offering a workplace policy that allows employees to carry over annual leave to the next year has lots of benefits. Not every business offers this to its staff, so it’s an easy policy to implement and use as part of your recruitment toolkit – and on top of this, it can help with staff retention and morale too.

It also helps to prevent bottlenecks at the end of the allowance year, when employees suddenly need to use up lots of annual leave at the same time.

If your annual leave allowance calendar runs from January to December, for example, multiple staff members could suddenly want to take holiday in December if they weren’t allowed to carry it over – but what if your business is at its busiest over the Christmas period? The carry over policy helps to avoid this scenario.

From the employer side, it’s a policy that employees like and doesn’t cost a penny to implement – as long as you get organised on the HR side of things, like keep on top of annual leave taken and owed, it’s a simple benefit to enforce.

If you’d like your staff to get more annual leave, you could also consider launching a holiday purchase scheme, or even an unlimited holiday policy.

What are the risks or downsides of carrying over annual leave?

While a carry over policy for annual leave has an abundance of benefits, it’s also important to be mindful of the downsides too:

• Some employees may intentionally not use annual leave days so they can carry them over – but this could lead to burnout.
• A policy without a limit on how many days employees can carry over can lead to employees having a huge holiday entitlement the following year.
• Annual leave management becomes more complicated when some employees carry over days and others don’t.

The latter two points can be overcome with careful planning with HR, and clear policies regarding how many days can be carried over outlined in staff handbooks. When it comes to the employee burnout risk, it’s a good idea to encourage employees to take annual leave throughout a year – but if you notice a team member struggling, take them to one side and check in on them. They may not realise they need a break!

How do I implement a carry-over annual leave policy at my business?

So, what’s the best way to implement a carry-over policy for annual leave at your business? First, assess how this policy will work for you. To avoid excessive days carried over, many businesses cap the number of days employees can take over to the next year – this is usually around three days, but another number may work better for you.

Employers can also ask that all carried over leave be taken by a certain date, for example, within the first three months of the new leave year.

Lay out the policy in your employment contracts and employee handbooks so everyone has the same access to the same information, and keep an open line of communication with staff in case there is any confusion or queries.

Remember, this policy is free to implement – just make sure that your HR team has a full understanding of the policy so they can be mindful of it when keeping track of annual leave.

Final thoughts

A carry-over annual leave policy gives employees flexibility on when to take their holiday allowance. When implemented with some parameters in place that help keep your business on track – like avoiding staff carrying over too many days – the policy can be beneficial to both employers and employees in multiple ways.

Remember, outline exactly how this policy works at your business in both employment contracts and employee handbooks to avoid any confusion.

Kirstie Pickering - business journalist

Kirstie is a freelance journalist writing in the tech, startup and business spaces for publications including Sifted, UKTN and Maddyness UK. She also works closely with agencies to develop content for their startup and scaleup clients.