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What is annual leave? – a complete HR guide for your business

Annual leave can be a difficult topic to tackle – how do we ever know we’re giving enough or too much time off to our team? What’s the best way of putting a time off process into place?

I'll help you understand what annual leave is, and share my perspective on how to best manage it at your small business or startup.

Annual leave in the UK – definition

According to UK employment law – statutory

Annual leave, also called PTO (paid time off) or holiday leave, is time off that team members are entitled to and accrue each month.

In the UK, annual leave means a statutory entitlement of 28 days per calendar year – this can include bank holidays and is for employees that work a 5-day week.

Annual leave policy for small businesses and startups in the UK

A lot of small businesses and startups decide it’s best to offer the minimum statutory allowance to their team members – mainly because the workload is heavy and the pressure to make a venture successful is huge.

In fact, a lot of small businesses and startups I speak to believe that more holidays will mean less work, but in my experience, giving less time off to your team can actually be counterproductive to what you’re trying to achieve.

What do I mean by that?

Annual leave is, first of all, an important factor when it comes to being a competitive employer on the market – a lot of team members expect to be able to take time away from work to recharge and be with friends and family, and the minimum allowance won’t necessarily allow them to do so.

Whenever I speak to small businesses and startup owners, I always try to encourage them to put more generous allowances into place so they can hire and retain the best talent.

In the long run, a generous holiday allowance will avoid burnout amongst employees and make sure they can rest and relax in-between busy periods at work – allowing them to be high-performing when they’re at work.

What is annual leave – a more generous allowance

Although it can be difficult to know how much holiday UK small businesses offer on average. I’ll take Charlie, the company I work for, as an example: we offer 25 days of holidays with bank holidays on top.

This might sound like a generous amount, but it’s competitive, whilst still allowing teams to be productive. Let me sum up here why you should at least consider offering a similar amount:

  • You’ll attract and retain the best talent at your business with a progressive and inclusive policy
  • You’ll avoid employee burnout with a fair amount of days off across the year
  • You’ll reduce the number of potential unauthorised absences from work
Time off principles - what is annual leave

Annual leave for small businesses and startups – state of things

According to The Guardian, 2022 is a “candidate’s job market”, mainly because the circumstances allowed job seekers to negotiate with their potential employers.

In 2023, it's likely that small businesses and startups will still need to be at the forefront of progressive policies if they want to attract the best talent.

That’s why it’s important to stay as competitive as possible as an employer. Let me share with you some of the ways you can do that at your small business or startup.

Putting together a carry over holiday policy

Carrying over holiday means moving holidays your team members haven’t taken into the next year so they can still enjoy their leave and avoid losing it.

A lot of companies – specifically during the Covid pandemic – chose to do so as people weren’t generally keen on taking days off when they couldn’t travel or spend time with loved ones.

In fact, today there are many other circumstances that can hinder your team members’ ability to take days off, and that’s where you should consider building a carry over policy.  

This will not only give you a competitive edge but also mean your team members don’t have to worry about any untaken holiday when the end of the year comes.

Allowing for unpaid leave

Unpaid leave means taking days off without receiving any wages. That is, of course, a possible solution if your team member doesn’t have any time off left and needs to take some.

However, I would suggest approaching this situation with caution. You wouldn’t want to allow unpaid leave to become a regular thing at your small business or startup, compromising your productivity and the future of your business.

If you choose to allow for unpaid leave, I’d recommend doing it under specific circumstances and only if the team member doesn’t have any other solutions.

Offering sabbatical leave

Sabbatical means offering an extended period of leave to your team members. Most companies wouldn’t let team members take more than three weeks off, as this could be a problem in terms of achieving their business goals.

However, offering a sabbatical to long-term employees is a good way to reward them for everything they contributed to the company in their years of work. At Charlie, for example, our policy allows team members to get a month of paid leave at 50% of their normal salary.

This is a great opportunity for team members who want to go on a long trip abroad or who have a project that requires them to be off work.

Overall, sabbatical leave is one of the best ways to ensure you attract and retain the best talent at your business as an incentive.

Consider offering more than just annual leave

As I mentioned before, it’s possible to offer more than the statutory pay for your team, but there are other ways to personalise your time off policies to create a unique company culture.

Again, this is totally up to you and you can choose to iterate the kind of leave you offer as time goes on, but to give you an idea of what the current HR trends are on the market, here’s a couple:

  • Offer Christmas and NYE break – some companies offer a long break or some days off during this period as business tends to slow down. Of course, that’s not possible for everyone, but it’s usually done on top of the employees’ allowance.
  • Work a 4-day-week – small businesses and startups, as well as bigger organisations, have been experimenting with the idea of not working on Fridays. This has been successful in terms of productivity, so perhaps have a look at how beneficial it could be for your team.

My main advice would be to always experiment and iterate when it comes to annual leave. That way you can try and work out whether it doesn’t work out rather than being left in constant doubt.

And if you think it’s a lot to remember for your team to remember all the details of your time off policies, perhaps think about storing your handbook somewhere everyone can have access to, such as HR software.

Handbook for CharlieHR

Annual leave for small businesses and startups – managing time off processes

Annual leave starts with understanding how to manage time off at your small business, but it can be difficult to handle if you don’t have the right processes in place.

Let me share a few tips to handle it as smoothly as possible.

Understanding how annual leave is accrued for team members

How annual leave is accrued depends on how much time your team members are working per week.

For people who work a 5-day-week, it’s pretty simple, they get the statutory allowance of 28 days per week.

But if, for example, you have part-time employees, this means you will have to calculate the allowance according to how many days they work per week.

Finally, there’s also a possibility that your team members are paid hourly. In this case, their holiday would be calculated according to the number of hours they’ve worked.

Have a look at our guide on calculating holiday allowance for your team members to find out more, or use our holiday calculator.  

Calculating time off - what is annual leave

Create a clear process for annual leave requests

Another important aspect of annual leave at your business is the need to put together a clear time off process.

You can’t just leave team members with policies and no way to follow them, so that means you might have to audit the current process and perhaps find out it’s time to update it.

I’ll usually recommend putting together an employee time off form so you don’t get random emails with missing information, and making it easier to standardise the requests.

Once that’s done, it may be time to think about ways you can streamline the process you follow day-to-day and save some time on it.

Streamline your annual leave process as much as possible

Of course, getting an employee time off form will make the process a bit smoother, but it won’t do much in terms of reducing the time you take going through these requests.

In fact, you’ll still have to reply to emails, record time off, make sure there’s no overlap and update allowances as needed.

So how can you make sure you remove some of that admin from your day?

First, I’d suggest you use a Google Sheet holiday tracker to make your life a bit easier and get your calculations completely automated.

Then, save all the time off requests in the same folder (whether it’s a Drive or a folder on your computer) so you can have it all in the same place and come back to it at any time.  

Finally, add annual leave to your Outlook calendar so you get visibility on all the time off your team is taking and you can amend it as needed.

It might not be the perfect solution, but it’s a start.

Completely automate your annual leave requests

There will come a time when you will feel like you simply can’t stay on top of all these annual leave requests.

That naturally happens as your company grows – many new joiners arrive and the workload you already have keep on increasing.

That’s when you should consider automating your time off process – and I’d strongly recommend HR software to make it a success.

Here are a few reasons why:

  • Get all your annual leave requests recorded in one single place that all your team members can access
  • Have a full annual leave calendar to visualise who’s off and when at any time
  • Get team members to self-serve by sending requests that you can approve or deny in one click
  • Let go of updating spreadsheets: with HR software time off allowances are calculated automatically
  • Get the opportunity to go further and make decisions on the future of your business with built-in reports
automate time off for your team - what is annual leave

If you’re not sure which solution would be the best for your business, you can have a look at our guide on best leave management systems.

Annual leave – other types of absences to consider

Annual leave is one of the most common reasons for absence at your business and it’s crucial to plan for it.

However, there are other types of leave you should take into account when it comes to time off processes – maybe also have a look at our guide on managing employee absence to find out more – but here’s an overview of the ones I’m referring to.

Sick leave at your business

Sick leave can cover a lot of absences at your business. That might range from the occasional cold to mental health struggles or long-term sick leave.

Unlike annual leave, sick leave can be difficult to account for, especially because team members get ill at any time of the year and with no notice.

Managing sick leave starts with putting HR policies into place so team members understand the support they’re offered and how much paid sick leave they’re entitled to per year.

All in all, sick leave needs to be recorded as much as annual leave. Something you can also do with HR software like CharlieHR.

Book sick leave for your team members - what is annual leave

An HR system will allow you to understand which team members are taking a lot of sick leave at your business so you can come up with procedures to deal with these instances. Maybe have a look Bradford calculator method for example.

Other types of leave

Sick leave is probably the second most common reason why team members won’t come to work, but there are plenty of other instances where they might not show up.

That’s why it’s essential you get HR policies that outline all the procedures around each type of time off and what limits team members are entitled to, so you avoid having it all up in the air.

What does that look like in practice?

Let’s take Charlie for example. We offer a few different types of leave for our team members and have a policy around each:

  • Personal days with a limit of 4 per year for the odd day where someone feels off
  • Bereavement leave with limits depending on the relationship to the person who passed away or who is sick
  • Unpaid leave in very exceptional circumstances

These are just examples of what we offer here, but many businesses offer period or menopause leave as well as charity days.

All in all, the best way to go about it is to first analyse how much annual leave and time off your team is taking on average so you can make the best decisions.

Maybe start a free trial with Charlie today to record all your time off and analyse it through one platform.

Click here to start a free trial with CharlieHR

And if you’re not sure how to go about creating a policy, I’d recommend booking a call with an HR advisor like me – we’ll guide you through the process and help you create a bespoke HR policy for your business.

I do hope this guide was helpful and that you’ll take some of our advice away with you.