05 August 2021 #Employment
Employment agency Reed has reported a 20% increase in the number of new positions offering unlimited annual leave as part of the benefits packages. Along with flexible working, it seems to be incentive employers are keen to explore and use as they compete to recruit the best talent from a pandemic weary workforce that values well-being and work-life balance.
But is it always a good idea? And how can employers avoid being sued by workers for breaches of the Working Time Regulations 1998 (WTR) which govern the rules on statutory annual leave?
Unlimited annual leave
The basic premise behind unlimited annual leave is that workers are trusted to manage their own time and get their work done. They are then free to take as much leave as they need for themselves and their families, usually in agreement with their line manager.
But how can employers ensure that workers who rarely get to the bottom of their ‘to do’ list feel comfortable taking their annual leave if it comes with the added pressure of leaving no significant task outstanding?
Businesses who have experimented with unlimited annual leave holiday generally report that few workers abuse the benefit. Workers were more inclined to take less leave than they used to take under the traditional ‘use it or lose it' scheme.
The law on annual leave
Under the WTR a full-time worker is entitled to 28-day statutory annual leave per year (which can include bank holidays.) If they don’t take the 28 days in the leave year, they have no right to carry it over to the next year unless it is for an excepted reason such as maternity or paternity leave or long-term sickness (the 'use it or lose it' principle).
If a worker is prevented from taking their statutory annual leave the WTR give them the right to bring an employment tribunal claim against their employer. If the worker proves their case the tribunal must make a declaration that the employer has prevented the worker from taking leave.
The tribunal may also award the worker financial compensation that it considers 'just and equitable' under the circumstances. When deciding what sort of compensation to award the tribunal will take into account the employer’s reason for refusing the worker their leave and the worker’s losses (so that could include the cost of the holiday)
The risks of unlimited leave policy
If your business decides to use an unlimited annual leave policy do not be tempted to cut back on the measures you usually take to record accrued, taken and outstanding leave. If you fail to do so:
Want to try unlimited annual leave?
Do not let these warnings put you off trying unlimited annual leave if you think it may benefit your business model. Anonymous feedback on Glass Door, the website used by job seekers to research potential employers, was largely positive about employers who offered it.
Writing in the Harvard Business Review in 2017, Aron Ain, the CEO of software company Kronos, reported a 3% increase in their employee satisfaction index and the voluntary turnover rate of staff dropped from 6.4% to 5.6%.
The key to its successful implementation will be complying with the statutory leave provisions in the WTR; making any additional contractual rights clear and by training and supporting line managers who must manage the new system.
For further legal advice on annual leave or any other HR employment matters contact our employment lawyers.