Why Untaken Holiday Cannot be Paid Out

Many companies choose to align their holiday year with the start of a tax year, so now seems as good a time as any to refresh memories of the rules concerning the practice of paying employees for untaken holiday.

Under the Working Time Regulations Act 1998, holiday should be taken for rest and must not be replaced by cash payments. Employers are restricted from paying for, or carrying over, minimum statutory leave, except upon employment termination.

• Health – the main purpose of paid leave is to ensure employees get sufficient rest in order to prevent burnout either physically or mentally
• Legalities – Rules prevent replacing minimum statutory leave with payment in lieu
• Encouraging time off – the “use it or lose it” rule (unless the contract of employment states otherwise) encourages employees to take holiday rather than saving it for financial gain.

By law a worker can only carry over holiday if their employer either does not encourage the taking of holiday, or the employer fails to inform the worker they will lose any untaken holiday.

There are only two exceptions to the rules concerning payment for untaken holiday:

1. Contractual/Extra Leave – if the employment contract provides more than the statutory 5.6 weeks and company policy allows for it, additional untaken holiday could be paid of carried forward
2. Sickness – if the full holiday entitlement could not be taken due to ill-health, the employee may be able to carry it over.

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Holiday is complicated, so if you have any queries regarding holiday pay, please contact your local Whitings office.