As a result of COVID-19, government rules* now state “workers who have not taken all of their statutory annual leave entitlement due to COVID-19 will now be able to carry it over into the next 2 leave years”. Raising the question of annual leave rollover might spur some businesses into wondering if the times they start and end their holiday year still work for them.
Currently, there are no rules dictating holiday-year start and end dates, as long as the minimum annual entitlement is met and properly communicated to staff through employment contracts. While this opens up the opportunity for variations, here are three of the most common holiday year options.
Employee start date
This is a great option if you don’t want all your employees clamouring to use up leftover holiday entitlement at the same time. A potential rush of leave requests as COVID-19 lockdown finishes hopefully wouldn’t be as drastic with this option as it might be if the holiday year is the same for everyone. Also, keeping on top of the individual calculations may be simpler (particularly when hiring new employees), as you don’t have to worry about calculating pro-rata entitlements based on the company holiday year.
But, everyone having a different holiday year can make leave admin a nightmare! Keeping track of every employee’s holiday entitlement and knowing who still has time left before the end of ‘their year’ is difficult without an excellent HR system in place to manage the calculations.
This holiday-year option makes it more challenging for HR to ensure employees take the legal minimal entitlements. And, due to bank holidays with inconsistent dates every year like Easter, HR may find themselves having to award extra days, or grant extra time to employees who miss out on bank holiday entitlements that other employees automatically get.
Calendar year: 1 January to 31 December
It may be an easier choice for employers to have their holiday year coincide with the calendar year. In fact, it’s commonly used by our customers, with 75% of holiday plans set for a January start**.
It makes it more straightforward for HR and line managers to keep on top of entitlements. Bank holidays are also a lot simpler to take into account than an employee-start-date holiday year.
On the downside, this plan often causes leave request conflicts over the Christmas holiday season, as employees wish to spend this time with their friends and family. This can lead to tension among staff when management is deciding who should get the time off. If it’s not carefully managed, the risk is that your business is left shorthanded and your staff unhappy. It’s crucial that expectations about who can take leave over Christmas are set well in advance, and line managers have plenty of visibility early on into who still has leave to use up.
Financial year: 1 April to 31 March
This approach is especially popular with companies whose finance teams are complying with the reporting requirements of FRS 102.
While you do not normally pay your employees for holiday they do not take, you would be required to do so if employment was terminated. In this instance, under FRS 102, leave that’s been accrued and not used should be accounted for as a liability.
Aligning your holiday year with the fiscal year can make financial reporting a lot easier. But an April start has similar issues to a January start in terms of the potential for a rush of leave requests over holiday seasons – in particular at Easter when it falls before the end of March.
Regardless of what approach works best for your business, planning, communication and access to the right data are essential in ensuring you achieve legal compliance and business objectives. With modern HR software, you don’t need to worry about manually calculating holiday entitlements based on when the year starts, when the bank holidays fall, or the hours your employees work. It’s even easy to manage different holiday rules within the same company or to manage overseas annual leave requirements.
*https://www.gov.uk/government/news/rules-on-carrying-over-annual-leave-to-be-relaxed-to-support-key-industries-during-covid-19
**5133 out of 6840 accruable holiday plans created in our HR software in 2019 by customers worldwide
