We have a part-time employee who has asked to take two periods of unpaid leave during the next calendar year so that she can go travelling. We are happy to grant her these periods of unpaid leave, but the question is, will she continue to accrue holiday leave entitlement during this period of absence?
My research into this area has drawn up conflicting opinions and conflicts in the absence policies of various public sector departments. Some state no holiday leave accrues during unpaid leave and others list unpaid leave along with maternity and sickness, which means that holiday leave does accrue. So what is the official legal position on the situation?
The legal verdict
Esther Smith, a partner at Thomas Eggar
There hasn’t yet been any decisive case on this point, which perhaps explains why you have come across conflicting views. However, a strict interpretation of the wording used in the Working Time Regulations 1998 would suggest that the right to accrue holiday does continue even when an employee is on unpaid leave.
The WTR say that a ‘worker’ is entitled to 5.6 weeks’ holiday in each leave year. The definition of a ‘worker’ includes any individual that has entered into or works under a contract of employment.
Therefore, provided your employee remains under a contract of employment while she is on unpaid leave, she would continue to accrue her statutory holiday entitlement – as is the case with other forms of leave such as maternity and sick leave.
If an employee does not have a regular or consistent income – as would be the case here if she were taking a period of unpaid leave – payment for a week’s holiday under the WTR would be calculated by reference to what work was actually done.
So, if a staff member had not done any work over a three month period and, as a result, had not received any payment for that period, any holiday that they may have accrued under the WTR would not necessarily entitle them to paid holiday.
The simplest way to address this situation, however, is to confirm that, in the agreement with the employee which details the terms of their period of leave, holiday does not accrue during their period of absence.
While there may be a technical argument that holiday continues to accrue under the WTR, in reality the value of such an argument appears to be very low and I doubt an employee would challenge it in practice.
Esther Smith is a partner in Thomas Eggar‘s Employment Law Unit.
Adam Partington, a solicitor at Speechly Bircham
The legal position on this point is unclear, in that there is no definitive legal authority on whether annual leave accrues while an employee is on unpaid leave or not.
Full-time staff members are entitled to 5.6 weeks annual leave under the Working Time Regulations 1998 (equivalent to 28 days for employees who work a five day week). For part-time employees, the figure is calculated on a pro-rata basis according to how many days per week they work. Many employers grant contractual annual leave entitlements over and above these levels.
Employees taking up other types of leave such as maternity, paternity or adoption will accrue their statutory annual entitlement as well as any contractual leave that they are entitled to under their employment contract, even though they are not working and have no obligation to work during these periods of leave.
So although your staff member will be on unpaid leave, she remains an employee and retains continuity of employment. Therefore, it is highly likely that she will continue to accrue statutory annual leave.
As such, if you decide that you do not want to let this annual leave accrue, it could open you up to a potential claim. But whether contractual annual leave accrues or not will depend on the terms of her employment contract.
There are some ways that you can try to avoid her accruing annual leave, meanwhile, although they are not necessarily fail-safe and you should take advice prior to implementing them.
For example, you could bring her employment to an end and then re-engage her when she returns to prevent annual leave accruing. But you would need to be careful how you handled the situation due to the risk of an unfair dismissal claim.
Alternatively, you could agree with the employee that she takes her accrued annual leave before she returns to work. While this would mean you were furnishing her with annual leave, it would be taken before she returned rather than afterwards, which would be less disruptive for the business. You should take legal advice if you want to explore these options, however.
Whatever course of action you decide upon, do explore any previous arrangements made with other personnel who have taken unpaid leave in the past. If there are existing policies or established practices already in place, you should consider following them.
Before the start of her leave, it would also be advisable to agree with your employee in writing which benefits such as salary, annual leave, medical cover etc will be suspended and which will continue during that period in order to reduce the risk of any misunderstanding at a later date.
It would likewise be worth checking the underlying terms of any insured benefit policies to ensure that you are not agreeing to something that is not permitted by those policies and which may affect cover.