Managing holiday entitlement

Providing favourable conditions towards leave days has always proved a popular benefit, but it can take many guises, says Jenny Keefe

Thankfully, we do not have an equivalent word for the Japanese term ‘karoshi’, meaning death by overwork. Yet Brits often have an unhealthy approach to taking time off: a third of workers forfeited some of their annual holiday allowance in 2005, according to Croner’s Holiday debt survey.

Holiday is a fundamental part of any benefits package. So it is essential staff take the right amount of annual leave. Paul Sellers, policy adviser at the Trades Union Congress (TUC), says: “Holiday entitlements are currently rising up the agenda. People are increasingly looking closely at their holiday entitlements when choosing between jobs. Employers of choice consult their workers on the details of leave schemes.”

The Working Time Regulations 1998 gave everyone the right to four weeks’ annual leave and, under current law, employers can count bank holidays as part of this allowance.

But the government has proposed to increase the minimum statutory entitlement by 0.8 weeks from 1 October 2007, when it will rise to 24 days. A further four days per full-time employee will be introduced from 1 October 2008. These increases will be awarded proportionally depending on when an organisation’s leave year starts. A proposal has also been put forward to cap the maximum statutory holiday entitlement at 28 days, although employers may give more contractual holiday if they wish. Consultation on the proposals ended on 13 April. At the time of going to press, guidance had yet to be published, but was expected imminently.

Part-timers’ holiday entitlement must be calculated on a pro-rata basis.

While most employers give staff bank holidays off in addition to the statutory leave entitlement, policies vary. Some organisations make staff take this as part of their annual leave or, if they are required to work, give extra pay or time off in lieu. Under the new proposals, any time off for bank and public holidays is included in the extra days.

Maya Cronly-Dillon, senior associate in employment law at Lovells, says: “Bank holidays can pose problems. If a part-timer works on Mondays, when most bank holidays fall and the workplace shuts down, it’s impractical for their employer to insist that they can only take off a pro-rated number of bank holidays.”

Equally, requiring part-timers to use their normal holiday entitlement to make up any shortfall may be discriminatory.

In the recent case of McMenemy v Capita Business Solutions, the Court of Session in Scotland ruled that the company had not discriminated against a part-time employee who claimed they missed out on bank holidays because they did not work on Mondays. Although it concluded the employer was not obliged to increase holiday entitlement, this argument is likely to be more successful in organisations which operate seven days a week, where full-time staff who don’t work on Mondays may also miss out on bank holidays.

Staff on maternity leave have the right to exactly the same benefits as colleagues during their first six months of leave. This means clocking up their contractual holiday as usual, whatever they are entitled to. Yet during the second six months if they choose to take additional maternity leave, they are only entitled to the statutory four weeks of holiday. It’s up to employers whether they want to offer contractual leave during this second stretch.

Another concern is when maternity leave spans over two holiday years. Under current laws, new mums are not legally entitled to carry holiday over from one year to the next, so must simply use it or lose it. Nicola Rabson, a managing associate at law firm Linklaters, says: “It’s highly advisable to take the full leave for the year before maternity leave [begins].”

Once you know what staff are entitled to, there’s plenty of scope for employers to put their own stamp on a scheme. The many options available include allowing staff to buy or sell holiday, or carrying unused days over to the following year, as well as offering career breaks and sabbaticals.

One common scheme is allowing staff to carry over any unused holiday to the following year’s entitlement. “Most organisations limit this to five days per year,” says Sellers.

Some firms also allow workers to bank days off to use at a later date. “The employer will usually retain a say in when the worker is allowed to use banked leave and any outstanding balance is paid to the employee when they leave or retire,” Sellers adds.

When it comes to buying and selling holidays, employers need to tread carefully. Many firms offer this option through flex plans, but if all staff suddenly say ‘yes please!’ to extra holiday, employers could end up understaffed.

Chris Bruce, director, marketing and technology at Thomsons Online Benefits, says: “Look carefully at resource planning and how many staff you need in the business to ensure it runs smoothly. Don’t be tempted to go for too much too soon. Perhaps start allowing employees to trade up to three days in the first year, then consider increasing it from there.”

Employers should also ensure that they price such a scheme correctly. Failing to factor in the additional national insurance (NI) costs, for example, may result in them having to fork out the extra cash themselves.

Kevin Grady, head of reward and evaluation at Aegon UK, recommends calculating the cost of a day’s pay by dividing the annual salary by 261 (the number of working days in a typical year before any statutory holiday entitlement is deducted). Then, multiply this sum by 0.88 to take account of additional NI incurred. So if an employee earns £26,500 a year, a day’s pay would be worth £102, which minus NI totals £89.30 a day. “For part-timers, holidays are translated into hours rather than days to allow the offer to be made,” he adds.

But holiday trading is something of a hot potato among HR managers. Fiona Brazil, head of personnel at the British Antarctic Survey, disagrees with allowing staff to sell leftover holiday. “It’s much more important staff take their holiday than get a few extra pounds at the end of the year,” she says.

Case study: British Antarctic Survey

Captaining leave perks

While Captain Scott battled diminishing rations, inadequate clothing and a leaky ship, today’s polar explorers have it somewhat better.

British Antarctic Survey (BAS) staff enjoy a raft of perks, including 30 days annual leave and a defined benefit pension scheme, plus state-of-the-art bases equipped with on-site gyms and chefs. Fiona Brazil, head of personnel, says its holiday entitlement helps keep staff in the right frame of mind. “It’s a vital part of employee engagement. It’s a busy and demanding job, so it’s important to make sure staff are rested and have a good work-life balance.”
Some 200 BAS employees are based in its Cambridge headquarters, while a further 300 are out in the field. Holiday varies according to role. Cambridge-based staff, for example, receive 30 days per year, although workers don’t accrue formal leave while stationed in the Antarctic. They clock up 30 days pro rata while training in the UK and are entitled to 10 days leave before they set off for an expedition. Staff still accrue leave at the full-time rate while on maternity leave.

Brazil believes employers should plan for staff taking leave in advance. “You need to make sure there are fair arrangements for cover over popular times, so the same people don’t always draw the short straw.”

Case study: McNicholas

Build holiday exchanges

McNicholas is on to a winner with its holiday trading scheme. When the Hertfordshire-based engineering firm carried out its annual survey, it found buying and selling leave was the most popular benefit.

Lindsay Blackman, former HR director at the firm, says: “Staff are positive about the [holiday trading] scheme and wish to keep it. It’s helped us attract and retain good people.” Three years ago, the company launched a flexible benefits scheme and included the option to buy or sell up to five days leave per year.

In the construction business, work comes in peaks and troughs, so holiday arrangements need to be flexible. “We let employees carry over five days’ leave into the next year and some then cash these back in through flex,” says Blackman.

Its online flexible benefits system also calculates exactly how much a day’s holiday is worth to each person. “Our online system works it out for the individual and gives them dummy payslips. [It] then sends the info to payroll,” she adds.