Managing Annual Leave

December 04, 2023

Employers are obliged to provide paid annual leave to all workers covered by the Organisation of Working Time Act 1997. This Act applies to all employees working under a contract of employment, contract of apprenticeship and those employed through an employment agency. It is essential that employers understand how to calculate annual leave entitlements, and they are aware of their legal obligations.

How is annual leave calculated?
Depending on employees working hours their annual leave entitlement should be calculated by one of the following methods:

a) 4 working weeks in a leave year in which the employee works at least 1,365 hours (unless it is a leave year in which he or she changes employment).
b) 1/3 of a working week per calendar month that the employee works at least 117 hours.
c) 8% of the hours an employee works in a leave year (but subject to a maximum of 4 working weeks).

Employees covered by two or more of the above calculations will be entitled to use whichever reference period results in the greater amount of annual leave. The “working week” is defined as the number of days that the employee concerned usually works in a week. For example, if an employee works three days a week, then an entitlement to four weeks annual leave would amount to 12 days of leave in total.

The leave year:

The Organisation of Working Time Act 1997 provides that the statutory annual leave year runs from 1 April to 31 March each year. In practice, many companies have an annual leave year which runs from 1 January to 31 December, or 1 August to 31 July, etc. What is important is that whatever leave year is selected, it must be adhered to consistently.

Accrual of annual leave whilst on certified sick leave

As of 1 August 2015, employees accrue annual leave during periods of certified sick leave. However, the entitlement of employees who are on long-term sick leave will be capped; leave will be subject to a maximum “carryover” period of up to 15 months from the end of the leave year in which it accrued. The precise entitlement of an employee returning from long-term sick leave will depend on what month of the year the employee comes back to work.

Other pointers that businesses should be aware of in relation to annual leave include: 

If an employer requires an employee to use their annual leave for a specific time in the year, for example a company shutdown, they must be given at least one month’s written notice but ideally the notice period should be longer.

If an employee has worked continuously for eight months without taking any annual leave, they are entitled to take two weeks of unbroken annual leave together. 
Employers cannot pay an employee in lieu of annual leave unless the employment relationship is terminated by either party.

Absences from work (other than statutory protective leave, annual leave, public holiday leave, jury service leave or certified sick leave) can reduce an employee’s annual leave entitlement. This happens where the minimum number of hours (1,365) has not been worked in the leave year due to absence on strike, lay-off, uncertified or unauthorised absence etc.

What records must be kept?
An employer must keep records at the workplace to show that the statutory provisions on annual leave are being complied with by the company. The Act requires that annual leave records should be kept for 3 years.

If you have any questions on the above please contact HR Support on