How to create an annual leave policy for your business

Every small business that has employees also needs to have their own holiday rules, known as an annual leave policy.

Keep reading for what to include in an annual leave policy template, how to manage requests for time off, and what to do if staff want to carry leave over to the following year.

What is annual leave?

If you employ people, they’ll have the right to a minimum number of days paid holiday each year. They can use this time to go on holiday, attend an event, or just have some time to rest.

Most employers allow staff to take a maximum number of holiday days a year, but it must meet the minimum number set by the government. In recent years there’s been a trend of employers introducing an unlimited holiday policy, although it comes with added complications.

As an employer, you should have a system for requesting holiday – either an online portal or using physical holiday forms. Staff can use the annual leave planner to request time off and keep track of how much holiday they’ve taken and how much they’ve got left.

The rules on how staff can request paid time off are usually set by a company holiday policy, covering issues such as notice, carrying over holiday, and what happens when two or more members of a team want to book holiday on the same day.

Who is entitled to holiday under your annual leave policy?

There are important statutory requirements when it comes to annual leave, and you’ll need to follow these regardless of what it says in your holiday policy.

The amount of leave your employees are entitled to will depend on the number of days a week they work.

If the employee works five days a week, they’ll be entitled to at least 28 days’ paid holiday (which can include bank holidays).

If they work part time, you’ll need to multiply the number of days they work a week by 5.6 to get their holiday entitlement. For example, if they work two days a week, they’ll be entitled to 11.2 days of paid holiday.

Remember that 28 days is the statutory maximum: even if employees work more than five days a week, they’re not legally entitled to more than 28 days’ leave – unless you choose to offer more.

If you’re not sure how much holiday your staff should be entitled to, you can use this holiday calculator on the UK government website. It’s especially useful for working out holiday allowances for staff who’ve joined part way through a year.

Offering extra leave under your holiday policy

Many businesses choose to offer more generous holiday leave entitlement for a variety of reasons, including looking after the wellbeing of staff and attracting the best talent.

However, you should think carefully about staffing levels, and make sure that you’re able to keep your business running effectively when staff are on leave.

You’ll also need to think about bank holidays. Legally, you’re entitled to include bank holidays in the statutory leave period, but many employers choose to offer these as extra days off.

For example, an employer could give staff 23 days annual leave plus eight bank holidays, bringing the annual total up to 31 days.

However, if you run a hospitality business that’s open all year round, you can give staff extra time off in-lieu for the bank holidays they work.

If your staff do need to work on bank holidays, it’s important to remember that you still have to give them a minimum of 28 days off.

Booking time off

Using a holiday policy template can offer a simple framework for employees booking time off.

It’ll usually includes a policy on notifying line managers, who can use their discretion if more than one employee on a team asks for time off during the same period.

An annual leave template can explain that all requests must be signed off by a line manager in advance, and that any leave taken without sign-off will be treated as an unauthorised absence.

There’s also provision for the minimum period in which employees must book their time off. In the template, employees are asked to give at least two weeks’ notice for all annual leave.

Legally, they must give you at least twice as many days as the leave being requested. However, it’s common to set a standard period such as two weeks in your policy.

This makes things easier for you and gives employees clear guidance as to what you consider good practice when it comes to booking holiday.

Carrying leave over

An annual leave policy may require that all annual leave is taken in the year to which it applies.

Towards the end of the year, many employers send a letter to remind employees to book and take their holiday leave entitlement.

However, there are certain ‘exceptional circumstances’ under which employees must be allowed to carry leave over, at their discretion.

The most common of these is an extended period of incapacitation, such as not being able to work due to illness or injury.

It’s important to remember that all employees have the statutory right to accrue holiday entitlement during periods of maternity, paternity, or adoption leave.

How are you getting on with creating an annual leave policy for your business? Let us know in the comments below.

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Annual leave policy template – how to approach staff holidays