Should you pay staff for untaken holiday?

Payment in lieu of holiday?

No matter how much statutory holiday someone is entitled to, the Working Time Regulations 1998 (WTR) are clear that it “may not be replaced by a payment in lieu, except where the worker’s employment is terminated”. Even if it seems like a good deal for both parties, allowing payment in lieu of holiday creates more problems than it solves. The most obvious downside is it’s an incentive for the employee to save holiday days. If someone would rather have the money than a day off, they are likely to avoid taking their annual leave, even if they need it. Undermining the law by offering pay in lieu of holiday risks their health and wellbeing as well as overall productivity.

Note. This rule only applies to statutory holiday allowance. For any holiday allowance you offer above the legally required 5.6 weeks, you can make a payment in lieu.

Can leftover holidays be carried forward?

The WTR are quite clear on this too, saying annual leave “may only be taken in the leave year in respect of which it is due” . However, this only applies to the four weeks of leave mandated by EU law and not the additional 1.6 weeks that make up the UK statutory allowance of 5.6 weeks or any extra non-statutory annual leave you offer.

You can allow 1.6 weeks’ worth of statutory holiday to be carried forward into the next year as well as any holiday sitting outside of the statutory allowance.