HR Glossary
Annual Leave
Annual Leave
Annual leave is a key part of the UK’s employment framework, offering workers paid time off to rest, recharge, and maintain a healthy work-life balance. For employers, managing annual leave fairly and effectively is not only a legal obligation, it also plays a crucial role in workforce wellbeing, productivity and retention.
This article explains what annual leave is, how it works in practice, and what UK employers and people managers need to know about entitlements, calculations, and pay.
What is Annual Leave?
Annual leave refers to the period of paid time off work that employees are legally entitled to each year. It allows individuals to take holidays, manage personal commitments, and step away from the demands of their job without sacrificing income. In the UK, all workers, including those on part-time, agency, or zero-hours contracts, are entitled to paid holiday.
Most employers go beyond the statutory minimum and offer enhanced holiday packages, but there are clear legal requirements that form the baseline for all employment contracts.
What Does UK Law Say About Annual Leave?
Under the Working Time Regulations 1998, full-time workers in the UK are entitled to a minimum of 5.6 weeks’ paid holiday per year. This equates to 28 days for someone working a standard five-day week. Employers can choose to include the eight UK bank holidays as part of this entitlement, or offer them in addition.
For part-time workers, the entitlement is pro-rated based on the number of days or hours worked. For example, someone working three days per week is entitled to 16.8 days of annual leave (3 days x 5.6 weeks).
Casual or irregular-hours workers are also entitled to annual leave, although the method of calculating it is slightly different and should reflect the hours they actually work.
How is Annual Leave Calculated?
Annual leave entitlement is typically calculated based on the length of the employee’s working week. For full-time staff, it’s straightforward: 5.6 weeks. For part-time or irregular work patterns, employers should calculate leave using either days or hours.
If an employee works shifts or variable hours, holiday can be calculated as a percentage of hours worked. The most common method is to accrue leave at 12.07% of hours worked, which is the equivalent of 5.6 weeks out of 46.4 working weeks in a year.
Employers must also ensure leave is calculated fairly for employees starting or leaving part-way through the leave year. In these cases, a pro-rata calculation should be applied.
How Does Annual Leave Pay Work?
Holiday pay must reflect what the employee would normally earn if they were working. For employees with fixed hours and pay, this is typically straightforward. For those with variable hours, irregular pay, or commission-based earnings, the rules are more complex.
Since 2020, UK law has required employers to calculate holiday pay using an average of the last 52 paid weeks (excluding any weeks in which no pay was received). This applies to workers with variable pay and is designed to ensure they receive a fair amount during periods of annual leave.
It’s also important to note that employees should not be financially worse off for taking time off. Rolling holiday pay into standard wages (known as “rolled-up holiday pay”) is no longer permitted.
Carrying Over Leave and Leave Year Rules
Employers usually set a “leave year”, a 12-month period in which annual leave should be taken. This is often set from the start date of employment or aligned to the calendar or tax year.
As a general rule, employees are expected to use their annual leave within the leave year, although some employers allow a small number of days to be carried over to the following year. The Working Time Regulations permit up to 1.6 weeks (8 days for full-time workers) to be carried over, but this can vary depending on your internal policy.
Additional carry-over allowances may apply in cases of long-term sickness, maternity leave, or exceptional circumstances such as the COVID-19 pandemic.
Managing Annual Leave in the Workplace
From a people management perspective, annual leave needs to be carefully balanced with operational demands. Clear policies help avoid issues like leave clashes, excessive carry-over, or underuse.
Employers can decline leave requests where there’s a legitimate business reason, but must not unreasonably prevent staff from using their entitlement. Similarly, requiring employees to take leave at certain times, for example, during a shutdown period, is allowed with sufficient notice (at least double the length of leave being enforced).
Annual leave isn’t just a statutory requirement, it’s a key part of building a positive, healthy working culture. By understanding how annual leave works and ensuring your organisation applies the law fairly and transparently, you’re protecting your workforce and your business.