Time off management

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What is annual leave? All you need to know

What is annual leave? All you need to know

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'm Alisa Mistry, HR professional with more than 10 years of experience – in this blog post, I'll help you understand what annual leave is and how much allowance your team members should get.

What is annual leave in the UK?

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

What is statutory annual leave?

In the UK, annual leave means a statutory entitlement of 28 days' holiday per calendar year.

Giving team members additional leave

A lot of businesses 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.

That's why some businesses choose to give a more generous allowance. Here's a sum up of why you should do it too:

  • You’ll attract and retain the best talent with a progressive and inclusive policy
  • You’ll avoid employee burnout (and long term sick leave) with a fair amount of days off across the year
  • You’ll reduce the number of potential unauthorised absences from work
What is annual leave – a more generous allowance

Are bank holidays included in your annual leave allowance?

There are eight bank holidays per year in the UK. Some employers choose to include these public holidays in the yearly annual leave allowance of their employees – this is completely allowed from a legal point of view.

However, that means the employee's amount of annual leave is then down to twenty days per year. I would usually advise your HR policy to add these bank holidays on top of the normal allowance to make sure your team gets enough time off.

Another alternative is to allow team members to work on these bank holidays and take a day off at some other times – this also ensures you don't discriminate against people who don't observe official bank holidays in the UK.

Managing annual leave at your business

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.

How do team members accrue annual leave each year?

It depends on how much time your team members are working per week.

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

How do you calculate holiday entitlement for part-time employees?

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

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 below to understand how it all works.

Calculating time off - what is annual leave

How do you calculate annual leave entitlement for leavers (pro-rata)?

It first depends on when your annual leave year starts. An annual leave year doesn't have to be from January to December – it's actually entirely up to you when you run your holiday year.

A lot of companies choose to run it in the following way:

  • From January to December
  • From April to March (financial year in the UK)
  • From when the employee starts

Whichever choice you make, be sure to include it in your team member's employment contract. Once that's done, you'll be able to understand how much the team member has accrued from the date they started at your company.

To find out what the number of days team members is entitled to, divide the annual allowance by twelve. Let's say the year runs from April to March with 25 days off with a team member starting in May and leaving in January (it has to be until the end of their notice period) – that means they'll be entitled to roughly 17 days.

To find out how much time your team member is currently entitled to whether they're leaving or they're part-time workers, you can also use our holiday calculator for more accurate results – it can also help you calculate holiday pay entitlement for your team.

Create a clear process for annual leave requests

Another important aspect of paid 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 a holiday request form template 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 an Excel 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 a leave management system, your 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.

Tops tips to manage annual leave in the UK

Making sure you have a clear time off policy

There are a few ways you can manage your annual leave – and that goes without saying that having a clear policy outlined in your employee handbook is crucial for you and your team.

Among many things, it will be a concrete way to set rules such as the following ones:

  • Ask for a notice period before team members request time off depending on how long it is – for example, one-month minimum for one week and three months minimum for three weeks
  • Set a limit on how much annual leave can be taken at once – you can, for example, forbid time off that's more than three weeks long
  • Restrict time off during busy periods – in order not to disrupt the business, you can make sure your team members don't take time off during specific periods of times such as Black Friday in retail
  • Request time off to be taken at specific times – a lot of businesses ask team members to take time off during Christmas, for example.

These are just a few examples. If you want to build a policy that's right for you, maybe book a call with me and my colleagues for HR expert advice.

Click here to talk to a HR advisor

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.

There are many circumstances that can hinder your team member’s ability to take days off, and that’s why 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 leave 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.

Additional time off

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.

There are also other types of leave policies you should take into account when it comes to time off processes (paternity leave, maternity leave, adoption leave, sick leave...). Maybe also have a look at our guide on managing employee absence to find out more.

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