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Want to give staff more than 4 weeks' Annual Leave?

Published 24 Jul 2022

With the current struggle to recruit and retain staff following the effects of COVID-19 on the business environment and people's motivation and mental health, employers are looking more than ever at ways of engaging and appeasing staff to keep them engaged and committed to the business. Hot on the heels of simply more money, options around offering a more lucrative better work/life balance are becoming increasingly more popular. As such, some companies are offering staff more annual leave.

Three weeks entitlement under the Act became four weeks in 2007 and now some business are even offering five weeks. This article discusses the options and obligations in doing so.

Giving employees more than 4 weeks annual leave is over and above your obligations as an employer under the Holidays Act 2003. This being the case allows you certain flexibility as to how any extra provisions are handled.

Accruing leave.

Under the Act annual leave is accrued continuously during employment. The calculation for this is at 8% of gross pay, 4 weeks being 8% of a year. Pre 2007 when it was 3 weeks the calculation was 6%. Following this formula puts 5 weeks be calculated at 10% accordingly which most payroll software will accommodate also. This however may come as a surprise to some when it comes to cashing out annual holidays or termination pay. Not only have they given staff more leave, but the pay calculations are also significantly higher.

It doesn't have to be this way. Because you're giving more than the legislated 4 weeks the extra proportion can be handled as you see fit. Your only obligation is to get agreement on it.

An employer may wish to explicitly remove the extra leave provision from holiday pay calculations. The extra leave could become immediately entitled after each 12 months. The employee could be obligated to use it within the following 12 months, the extra leave could be explicitly mandated that it doesn't roll over to subsequent entitlement years. Under law you cannot cash out more than one week annual leave anyway so extra leave wouldn't be affected in that way anyhow.

If you wish to go down this track, whatever you decide the rules are it's critical you are explicit and open about them in writing. Get them drafted as a clause in the Employment Agreement, handbook or policy document. In the absence of anything you will be accruing at least 10%.

For an indepth guide on how the Holidays Act works in a practical sense see our eBook Annual Holidays and Leave in the Library of the Employers Toolbox. Non-members can get a copy here.