Online HR Toolkit
Get full access to 1000+ up-to-date HR guides, 24/7 Legal Helpline*, document templates, policies and guidance for you or your HR team
What happens if my employee doesn’t take all their annual leave?
If an employee doesn’t take their annual leave, it can seem like a minor issue. However if it’s not managed properly, it can lead to serious consequences for your business, including large financial payouts, legal claims and compliance risks.
A recent high-profile case highlighted this clearly. A property manager was awarded nearly £400,000 after being unable to take holiday for years due to staff shortages. By the time his employment ended, he had built up over 800 days of unused leave.
While this is an extreme example, it raises an important question:
What are your responsibilities if employees don’t take their holiday and what risks do you face if you get it wrong?
1. Your Legal Responsibilities as an Employer
Who is responsible for making sure employees take holiday?
It’s easy to assume that employees are responsible for booking and taking their own leave. In reality, employers also have a legal duty.
As an employer, you should:
- Approve reasonable holiday requests
- Make sure workloads allow time off
- Avoid a culture where employees feel unable to take leave
- Ensure employees are able to take their annual leave
- Encourage them to do so
- Clearly communicate any rules around taking and losing leave
If employees are unable to take leave because of business needs (for example, staff shortages or high workload) this can become an employer issue.
In the recent tribunal case, the employee requested leave multiple times but was unable to take it. This contributed to the outcome.
2. What Does the Law Say about Unused Annual Leave?
What are the legal rules on annual leave?
Employees are entitled to at least 5.6 weeks’ paid holiday per year under the Working Time Regulations 1998 (pro-rated for part-time workers).
Annual leave entitlement is then calculated on a pro-rata basis for part-time workers.This entitlement must be provided and cannot be replaced with extra pay during employment.
When can unused holiday be carried over?
Unused holiday can be carried over in limited situations, including:
- Long-term sickness
- Maternity or other statutory leave
- Where the employer has not allowed the employee a reasonable opportunity to take leave or has failed to encourage them to do so
In most cases, holidays should be taken within the leave year.
Can you pay employees instead of them taking holiday?
No. Employers cannot replace statutory annual leave with a payment instead of time off while they are still employed. The only exception is: When employment ends – any unused holiday must then be paid in final pay.
When does unused holiday become a risk?
Unused holiday can become a risk if:
- Employees are not given the opportunity to take it
- Employers do not clearly explain holiday rules
- Employers fail to actively encourage employees to take leave
In these situations, holidays may carry over and build up over time, which can lead to financial liability later.
Can employees lose unused holiday?
Yes- depending on the situation.
Under the Working Time Regulations, annual leave is split into two parts:
- The first 4 weeks (Regulation 13): This must usually be taken within the leave year and cannot be carried over, except in cases such as sickness or statutory leave.
- The additional 1.6 weeks (Regulation 13A): This can be carried over into the next leave year, but only where there is a relevant agreement in place, such as an employment contract.
A key case, Shannon v Rampersad (2015), helps explain how this works in practice.
Shannon chose not to take any annual leave during his employment. When he was dismissed, he claimed around £15,000 for unused holiday, arguing that it should have been carried over.
The tribunal rejected this claim. It found that because he could have taken the leave but chose not to, he was not entitled to carry it over or be paid for it. There was also no agreement in place allowing the additional 1.6 weeks to be carried forward, he was not entitled to carry it over or be paid for it.
In simple terms:
- If an employee has been given a genuine opportunity to take leave, has been encouraged to do so, and has been clearly informed that it may be lost, it can be lost.
- If an employee cannot take leave due to long-term sickness, maternity or statutory leave, it may need to be carried over.
- If an employer has not taken reasonable steps to enable and encourage leave, it may need to be carried forward.
3. The Risks To Your Business
What are the financial and legal risks?
If annual leave isn’t managed properly, the risks can include:
- Large payouts when employment ends
- Employment tribunal claims
- Non-compliance with working time regulations
- Claims for unlawful deduction from wages
The recent case, where over 800 days of leave led to a payout of nearly £400,000, shows how significant this risk can become.
Why this can happen in any business?
This isn’t limited to unusual cases.
It often develops through:
- Employees delaying leave due to workload
- Lack of visibility over holiday balances
- Unclear or inconsistent processes
These are common challenges, especially in growing businesses or small teams.
4. What Can You Do to Reduce Risk as an Employer?
- Keep track of holiday usage – know who is taking leave and who isn’t.
- Set clear policies – Make sure employees understand how to book leave and what happens if they don’t use it.
- Address issues early – Don’t let unused leave build up over time.
- Avoid ad hoc or undocumented arrangements – Keep processes consistent and documented
- Plan workloads properly – Make sure employees can realistically take time off.
- Regularly remind employees to take leave, particularly towards the end of the leave year.
How MAD-HR Can Help
Effective management of annual leave requires clear structure, consistency and appropriate documentation.
Where an organisation permits the carry-over of annual leave into the following holiday year, this should be formally agreed and explicitly detailed within employment contracts and organisational policies. Clearly defined terms help minimise the risk of ambiguity or dispute.
For further guidance, our Employers Guide to annual leave is available within the Online HR Toolkit. If you would like to review your current approach or require advice on your legal obligations, we would be pleased to discuss your requirements.
Connect with us on our social platforms
This article is intended for general information purposes only and does not constitute legal or professional advice. It should not be relied upon as a substitute for advice tailored to your individual circumstances. Please be aware that the law may have changed since the article was published.
Articles may include links to external websites. We have no control over the content, availability or accuracy of these sites, and their inclusion does not imply endorsement or approval of the information or views expressed.
Book a Free HR Consultation
If you need access to commercial and friendly experts to chat through any HR concerns or challenges your business is facing, you have come to the right place!
