Accrual of statutory annual leave and sickness

The decisions referred to throughout this guidance, and any reference to statutory leave, only relate to annual leave entitlements under the Working Time Regulations (WTR), not the contractual annual leave provided for under the national agreements.

HMRC v Stringer

In 2009, the European Court of Justice (ECJ) held that workers on sick leave continue to accrue annual leave and that if workers are not given the opportunity to take annual leave during this time, they should be permitted to carry it over to the next leave year. When the case was remitted to the House of Lords it was confirmed that holiday could be taken while a worker is on sick leave.

Pereda v Madrid Movilidad SA

The ECJ found that the European Working Time Directive (EWTD) requires that where a worker is unable to take pre-arranged statutory annual leave in the relevant leave year due to sickness absence before the leave commences, the worker should have the option to designate a different period for the annual leave even if this requires carry over.

Asociacion Nacional de Grandes Empresas de Distribucion (ANGED) v Federation de Asociaciones Sindicales (FASGA) and others

The ECJ confirmed that where a worker becomes sick during statutory annual leave (as opposed to before statutory annual leave as was the case in Pereda), the worker should be entitled to take the annual leave at a later date, even if this requires carry over.

NHS Leeds v Larner

The Court of Appeal (CA) made a decision on the issue of whether workers need to request to take leave before the entitlement to leave/payment arises. The CA decided that such a request is not required under the Working Time Regulations (WTR) where the worker is unable (or unwilling) to take annual leave because of sickness (see Q&A below).

KHS AG v Schulte C

On a separate issue, the ECJ has also given its decision in the case of KHS AG v Schulte C. The case looked at the question of whether there is a limit to the length of time an employee on long term sick leave can continue to carry forward untaken annual leave. The ECJ held that the EWTD does not require unlimited carry over and that a backstop of 15 months was permissible. However, this case was about a German collective agreement so it is not clear whether it will be followed here.

Sood Enterprises v Healy

Most recently of all the Employment Appeals Tribunal (EAT) has held that the amount of annual leave which may be carried over to a new leave year is four weeks (the entitlement under the EWTD). The EAT confirmed that, in the absence of a "relevant agreement" under reg.13A (7) of the WTR, the additional 1.6 weeks' annual leave under regulation 13A of the WTR does not carry over. In effect this means that a full time worker can only carry over 20 days not 28 days.

Working Time Regulations

The Working Time Regulations were updated in 2024 to introduce important changes to ensure fairness and clarity in holiday entitlement, particularly during sickness absence, effective for leave years that started on or after 1 April 2024. 

Key changes:

1. Holiday entitlement for workers with irregular hours:
   • A new calculation method ensures statutory holiday entitlement is fair for workers with irregular hours or part-year contracts.
   • This adjustment safeguards the accrual of leave during absences, including sick leave.
2. Accrual/carryover of holiday during sickness:
   • Holiday continues to accrue during periods of sick leave. 
   • If a worker working regular hours and all year round is unable to take some or all of their statutory holiday entitlement as a result of being off sick, then the worker will be entitled to carry forward up to 20 days of their untaken leave (WTR reg.13 entitlement) into the following leave year. Any carryover must be taken by the end of the period of 18 months starting from the end of the leave year in which it was accrued. 
   • An irregular hours or part year worker will be entitled to carry over up to 28 days in these circumstances. Any carryover must also be taken by the end of the period of 18 months starting from the end of the leave year in which it was accrued. 
3. Holiday pay clarifications:
   • The reforms provide clearer guidelines for calculating the four weeks of statutory holiday entitlement to ensure consistency in "normal remuneration" standards.

Impact on holiday pay during sickness:

• These updates reinforce workers' rights to accrue and take paid holiday during sickness absence.
• Employers must ensure compliance with the changes, particularly for staff with irregular working patterns or extended periods of illness.

Read the full government guidance on holiday pay legislation.

FAQs for employers

1. What did the European Court of Justice and the House of Lords in Stringer say regarding sickness absence and annual leave?

The case provided some clarity in this area and later cases, particularly Larner and Healy clarified some unanswered questions. Stringer case says that workers can accrue and take statutory annual leave under the WTR during sick leave. Workers who are denied holiday pay can bring a claim under the WTR or as an unauthorised deduction from wages claim, which has a more generous time limit.

2. Can annual leave be carried over from one year to the next?

Yes, if a worker on sick leave has not had the opportunity to take their minimum holiday entitlement (provided for by the WTR) in the current leave year, they are able to carry forward into the next leave year any untaken amount of this 20-day entitlement.

The Healy case confirmed that the amount of leave that should be carried forward to a new leave year is limited to 20 days (for a full time worker) under regulation 13 rather than 28 days under regulations 13 and 13A of the WTR.

This is also reinforced by the changes to the WTR implemented in 2024 for regular hours workers, although it introduced different methods to calculate accrued holiday for irregular and part year workers, see ACAS guidance for further information.

3. Does this mean that any member of staff absent for any length of time can carry forward their untaken annual leave into a new holiday year?

Only if an individual has been unable to take their holiday entitlement because of sickness absence.

The Stringer case was specifically concerned with workers who had been absent for an entire holiday year. Employers should therefore allow workers in such circumstances to carry forward into the new leave year 20 days annual leave entitlement (under reg. 13 of WTR).

However, if an individual is able to take their outstanding annual leave on their return to work before the holiday year expires, they should do so. If they choose not to this holiday will be lost and cannot be carried over. If, however, there is insufficient time left in the leave year to enable them to take their accrued annual leave, they should be allowed to carry this leave forward into the new leave year.

The Working Time Regulations 2024 have not altered these provisions but have reinforced the importance of fair treatment in calculating holiday entitlement and pay during sickness absence.

4. What if the worker's employment has ended?

If, but only if, a worker’s employment ends before having had the opportunity to take their annual leave entitlement due to sickness, the worker is entitled to a payment in lieu at the normal rate of pay (see also 6 and 8 below).

5. Does the worker need to request to take leave before the entitlement to leave/payment in lieu of leave arises?

If the worker is sick for the complete leave year or where they return to work but there is insufficient time left in the leave year to enable them to take their accrued leave:

• they must be allowed to take it at another time, if necessary by carry over into the next leave year; and
• payment in lieu of accrued but untaken leave on termination must include payment for untaken leave which has been carried over (see question 6 below);
• this applies regardless of whether the worker made a request for leave (or to carry over untaken leave).

If the worker had the opportunity to take their holiday after recovery, the worker should request and take holiday before the expiry of the leave year. If they choose not to do so, this holiday will be lost and cannot be carried over or compensated for on termination.

6. Is there a limit to the length of time an employee on long-term sick leave can continue to carry forward untaken annual leave?

Employees on long-term sick leave have the right to carry forward untaken annual leave. 

For regular workers, up to four weeks of statutory annual leave can be carried over, provided it is taken within 18 months of the end of the leave year in which it was accrued. 

For employees working irregular hours or part-year contracts, with leave years starting on or after 1 April 2024, up to 5.6 weeks’ leave can be carried forward in these circumstances. Read the full government guidance on holiday pay legislation.

7. Can an employer require a worker to take accrued annual leave whilst they are on sick leave or as part of a phased return?

If a worker wishes to take WTR annual leave whilst on sick leave or as part of a phased return, employers should allow them to do so. It's up to an employee to request holiday while off sick. An employer cannot force an employee to take holiday while off sick, although you may wish to ensure they are aware this is an option as this may negate any issues in relation to carry over. ACAS has outlined further guidance.

8. On termination of employment how far back should employers go in terms of calculating payment in lieu of accrued but untaken leave?

Employees on long-term sick leave can carry over 4 weeks' unused holiday entitlement, unless the employer allows more to be carried over. This holiday must be used within 18 months from the date it's carried over. If they have not had the opportunity to use this accrued leave then this must be factored into any payments on termination. See also 4 and 6 above.

If an employee feels they have been underpaid, employment law sets out clear rules regarding backdated holiday pay claims.

• Employees must bring a backdated holiday pay claim within three months of the underpayment occurring.
• A Supreme Court ruling (Chief Constable of the Police Service of Northern Ireland and another v Agnew and others) clarified that a gap of more than three months between underpayments does not necessarily break the chain of unauthorised deductions from wages.
• Holiday pay legislation is complex and continually evolving, meaning any future errors could give employees the opportunity to claim for past underpayments.
• If underpayments occur without gaps of more than three months, employees may be able to claim for missed payments over a period of up to two years.

Employers should carefully review their holiday pay policies to ensure compliance and reduce the risk of claims.

9. How much holidays will workers accrue per year whilst on sick leave?

For each full annual leave year from 1 April 2009 onwards, workers will accrue 5.6 weeks of annual leave. The decisions referred to throughout this guidance only relate to WTR annual leave, not the contractual annual leave provided for under the national agreements.

However, following the Healy case, in the absence of a relevant agreement whereby the additional 1.6 weeks shall carry over, accrued holiday for previous leave years may be limited to 20 days (including public holidays) under regulation 13 of the WTR.

This is also reinforced by the changes to the WTR implemented in 2024 for regular hours workers, although it introduced different methods to calculate accrued holiday for irregular and part year workers, see information above and ACAS guidance for further information. 

We recommend that annual leave and sick leave policies clearly set out how holiday accrues during periods of sickness absence and what is included.

10. If a worker falls sick before or during their pre-arranged statutory holiday - can they cancel that holiday and take it a later date?

Yes, the decisions in Pereda and ANGED made it clear that a worker who becomes "unfit for work" before or during a pre-arranged holiday has the right to reschedule the affected holiday for a later date. Moreover, if there is insufficient time left in the leave year to enable them to take this leave, they should be allowed to carry this leave forward into the new leave year (although this can be limited to 20 days under regulation 13 of the WTR).

11. If the worker falls ill during their pre-arranged statutory holiday, are they entitled to reschedule the full leave period (including the days on which the worker was healthy)?

No, the worker can only reschedule the period of planned leave which coincides with the unfitness for work. 

12. Can an employer ask the worker to prove that they have fallen ill during annual leave before allowing the worker to reschedule the affected holiday?

Yes, we consider that an employer is entitled to ask for medical evidence of unfitness for work (over and above self-certification) if sickness occurs during a holiday. As it is an unusual situation, employers should make clear this applies regardless of how long the sickness lasts. We consider employers can also require workers to report sickness to their manager on the first day they become unfit for work.

13. What is the effective date of these changes?

Legally, the case law outlined above will probably be taken as stating the law as it has always been since the WTR were introduced in 1998, although further changes, also outlined above, were introduced in 2024. 

Employers need to ensure they are reviewing policies and procedures regularly and that they are updated in line with legislative requirements.

14. You refer to 'workers' throughout. Why?

The WTR apply to workers which is a wider definition than that for employees, for example it covers bank workers.