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Carrying over holidays – the do’s and don’ts for small businesses and startups

In my role at CharlieHR, I speak to tons of small businesses and startups looking for HR guidance every day.

As complex as HR can be, I’m always surprised at how often customers tell me they struggle with time off management, especially when it comes to carrying over annual leave.

So I decided to put together a full guide on how to approach carrying over leave at small businesses and startups, hoping you’d find it helpful.

Let’s have a look at what holiday rollover is, how you can make it available to your team members and what rules you should implement to manage it properly.

What do we mean by carrying over annual leave?

What carrying over holiday is

Carrying over annual leave means moving over holidays from the last financial year into the next one on top of the employee’s normal allowance for that year.

For example, let’s say Alice from Marketing didn’t take all of her holidays this year because she was off on sick leave for a long time and felt like she needed to catch up on her work: with carry over leave, she’ll be able to fully enjoy those days she didn’t take next year.    

What carrying over holiday is not

Carrying over annual leave, as its name indicates, only works for holidays and not for any other type of allowance. So even if your team members are allowed to take 20 days of sick leave per year, their allowance will automatically reset in the next year if they don’t use it all.  

It’s also important not to confuse carry over holidays with time off in lieu – this is when you give your team members time off instead of paying them overtime, for example when they’ve worked on a Bank Holiday.

How can employees carry over annual leave?

According to UK employment law, team members can only carry any day over 28 days of untaken leave into the next year – 28 days being the minimum leave each employee has to take.

That means that only companies with a holiday allowance higher than the 28-day minimum can allow their team members to carry over leave, but it’s up to the employer to decide whether they can do it or not.

When customers ask me whether they should allow carrying over leave or not in their business, I tell them they should probably look at implementing a policy that enables team members to carry over leave, but to come up with their own set of rules around it.

I’ve even written some of these HR policies myself when putting together company handbooks – because it’s crucial to make these rules crystal clear and not deal with carry over requests on a case-by-case basis.

I’ve also noticed that a lot of employers realise (albeit too late) that some of their team members don’t keep track of their holidays, and often, towards the end of the year, start asking how many days they have left.

Unfortunately, that can create a lot of confusion:

  • Team members worry they won't be allowed to take their leave, or that they’ll have tons of work to catch up on when they come back
  • Employers wonder whether the business will struggle to meet deadlines, release product updates or fulfil orders

When I hear customers worrying over this, I usually advise them to invest in self-service HR software to make it easier for themselves and their team members.  

Automating time off and allowing team members to self-serve is a great way to cut to the chase –  no questions interrupting your workflow and a complete overview of carry over annual leave if needed.

Screenshot of Charlie's time off allowance dashboard

Let’s take Bloom and Wild for example – HR software really changed the game. According to their People Experience Manager, HR software helped her stop being the first point of contact for the team and gave her the freedom to focus on other tasks and have all the information easily accessible in one place.

Diagram showing how easier it is to manage time off with CharlieHR

Why should employers have rules on carrying over annual leave?

It’s important for your business to consider perhaps allowing them to carry over holidays into the next year. That doesn’t necessarily mean, however, that you should do it – that’s totally up to you, but one thing you need to have is guidance in the form of an HR policy to outline the do’s and dont’s of holiday rollover.

Let’s find out why.

Ensure holidays are managed properly

Having too many people off at the same time is never a good situation to be in, especially if you’re at a critical point for growth in your journey as a small business or startup.

Towards the end of the year, time off can sometimes build up and soon turn into a problem as many team members take what’s left of their annual leave allowance.

With everyone rushing to book their time off at the last minute, it can leave big gaps in your workforce and decrease your productivity.

By putting a policy in place, you ensure people don’t have to worry about taking all their holidays when the time is up. And you can set up a few rules around it, for example:

  • Restrict the amount of time off during certain times of the year – if you’re in eCommerce or retail, for example, it can be handy to restrict it during big sales periods
  • Get employees to request time off at least a month in advance – to avoid unexpected time off to pop by when you need team members most
  • Having a deadline for when carryover leave should be used by, to prevent people having lots of carryover and current annual leave to take in one go. For example, if the holiday year runs from Jan - Dec, any carryover should be used by the following March
  • Any other rule that applies to your business requirements

At Charlie, for example, we ask our team members to book their holidays way ahead of time so it doesn’t disrupt any planning, but we also try to be accommodating so they don’t feel too restricted.

Inspire a sense of responsibility and make it fair for everyone

When I talk to customers about the problems they encounter with carrying over holidays, I always hear the same things:

  • It’s always the same team members who don’t take enough holidays and end up having plenty of days off left at the end of the year.
  • I don’t know how to make the policy fairer so everyone takes enough holidays and we’re not left stranded around the same period every year.

What I usually tell them is to keep an open mind as every team member is different, and that means some team members will be really organised when it comes to holidays whereas some won’t be.

Both sides of the coin have their own merits – someone who books all their holidays in one go at the start of the year doesn’t leave any room for the unexpected, whereas someone who doesn’t plan at all will accumulate too many untaken days of holidays.

Whatever the situation, that doesn’t mean it should impact the rest of the business and that’s where having rules, guidance and policies around time off will be crucial to make the process fairer.

To create a work environment where people are highly engaged and motivated, I would recommend a few things:

  • Put a few basic recommendations on how to book holidays – try and tell people to plan their holidays, but not over plan and have some back up for the unexpected
  • Gently reach out to team members who have not taken enough holidays by the second half of the year to remind them
  • If they’re having any personal issues or exceptional circumstances that make it so they can’t do it, reassure them and remind them about the carry over in the next year

Always remember to be flexible, but not too flexible so that it doesn’t affect your business in the long term.

Retain and attract team members in the long term

Giving visibility on what your business is about and what policies you have is essential if you want to attract the best talent.

Of course, you can’t display everything in the job ad – so your new team member will have plenty of questions when they start their new job.

That’s where I often tell my customers to store their handbook and policies on a platform where it’s easily digestible, rather than handing them a long PDF they’ll never get to the end of.

With HR software, for example, you get to store your handbook and separate it into different sections – team members can read it and come back to it at any time if they have questions.

Image of how handbooks can be stored in Charlie

Perhaps the policy for carrying over annual leave is not something your new team members will look at first, but when it comes to existing team members, it will make a huge difference to know what’s available for them.

By putting a clear policy together, you’ll guarantee they’ll never lose the days off they didn’t manage to take and avoid any regret or resentment.  

After all, it’s pretty common for people working at startups and small businesses to not take enough time off as everyone is super busy striving for growth.

However, make sure that commitment is reflected in your policies and reward your team members accordingly by allowing them to carry over holidays.

Keep team members happy and high-performing

Getting a happy and high-performing team is not just about finding over-the-top initiatives for them to engage in the work they’re doing, but rather focusing on what matters to them.

Over the years, the focus on mental health in our industry has increased considerably, and I always try to share this point of view: work is just a part of life, and it needs to strike the right balance with the rest.

That’s why it’s crucial for you to get your team members to regularly take time off. Not only will it naturally lower the carry over annual leave each year, but it will also be a good way to have your team members pause and come back to work refreshed and ready to tackle more challenges.

What you wouldn’t want is a team that’s overwhelmed and ends up burning out. Not only would it mean higher absenteeism, but you would also lose your people’s trust pretty quickly, resulting in many people leaving the business for pastures new.

How can you calculate and keep track of carry over annual leave?

Carrying over annual leave manually

You can choose to keep track of all of your annual leave through a spreadsheet or even by hand if that’s what you prefer (but that might be even harder).

Simply record time off for all your team members with the following information:

  • Name
  • Annual holiday allowance
  • Annual leave taken

At the end of each financial year (depending on when it runs from at your business), simply record:

  • Carry over leave going into the next year
  • When team members should use it by
  • Set reminders

You’ll need to keep track of the elements listed above, but you’ll also need to record the time off dates, update the allowance each time they book time off, speak to each team member if they go past the deadline, etc.

All of this can get complicated very fast, especially as you grow. So even though doing it manually can be an option, I generally don’t recommend it to customers as this can be a really time-consuming process, prone to errors.

Spreadsheets' pros and cons: they are free but time-consuming to manage

Carrying over annual leave with HR software

Perhaps you’ve already heard about the benefits of HR software when it comes to managing time off and recording holidays, but it can also help when it comes to carrying over annual leave.

HR software is a great solution if you want your time off management process all in one place and where team members can have access to it as well.

For you, having HR software means:

  • Setting up an annual carry over allowance with leftover leave automatically transferred onto the next year
  • Letting team members find information about their time off allowance withing the self-service platform
  • Overviewing carry over at a glance with a report to nudge anyone with too many holidays left over or check in with people who have repeatedly carried over leave
  • Adjusting allowance based on years of services (if you want to reward your team members) or location (employment laws might differ)
    GoSquared CEO James Gill found HR software completely changed the way he dealt with holidays and carry over leave in general: “I've got a number to go by in CharlieHR — it's always there and I know I can trust it. I feel that enables me to look after the team in a way that’s much more tangible.”
HR software pros and cons: it is not free but it saves you tons of time

All in all, the ability to carry over leave is a great asset for you and your team members, but maybe you should consider automating so you don’t have to think about it too much in the future.  

Click here to start a free trial of CharlieHR

That’s pretty much all I wanted to share when it comes to carrying over holidays, but perhaps you should also have a look at our guide on calculating holiday allowance for your team.