As we enter 2026, the new calendar year can be a refresh for many companies’ holiday days and can bring potential annual leave disputes.
Clear information around holiday days and pay should be stated in employee contracts and is often also contained in staff handbooks, but when it comes to more complex matters, it can be hard to know how to resolve them.
Our Associate Solicitor, Kristie Willis, explains how early preparation and understanding your obligations can help protect your business.
What are employers’ obligations for holiday pay and time off?
On 1 January 2024, the Government introduced several changes to the Working Time Regulations.
Every worker is entitled to 5.6 weeks of paid annual leave and additional contractual holiday entitlement can be promised in individual contracts.
Of the 5.6 weeks, four weeks must be paid at the worker’s normal rate (including for example, commission and regular overtime) and the remaining 1.6 at the basic remuneration. Many employers chose, however, to pay the remaining 1.6 weeks at the same rate.
For irregular or part-year workers, the reforms allow paid statutory holiday calculated to the hours they worked using the 12.07% accrual method.
When dealing with holiday pay, employers should have clear terms and policies in place to help reduce the risk of disputes.
They should clearly state if rolled-up holiday pay is used and this payment should be marked on payslips as an addition to a worker’s salary, so it is easily identifiable.
Company policies and employers should state if they have a use-it-or-lose-it policy in place for holiday days and offer regular reminders to employees of the deadline.
Some of the most common issues employers face around time off include:
- Conflicting annual leave requests
- Incorrect holiday pay, including overtime and commission
- Discrimination risks for other religious festivals such as Ramadan
- Poor record keeping of leave and holiday pay calculations
With holiday days potentially starting again, employers must remain compliant and make sure no errors are made.
These mistakes can quickly escalate into disputes or even Employment Tribunal claims, so employers need to act fast and seek legal advice early on.
How can employers protect themselves from disputes?
Reducing holiday pay disputes can be as simple as updating contracts and policies on holiday pay calculations, bank holidays, overtime and how leave requests are prioritised during peak seasons.
Employers should communicate with employees on how to put in their leave requests in advance and inform them if their holiday request has not been accepted.
Setting a clear cut-off date and creating a first-come, first-served or rotational holiday process can help manage fairness during busy holiday periods.
Documentation is also important to avoid disputes by maintaining accurate timesheets, overtime records, leave requests and payslips showing holiday pay.
It is important to comply with the current laws and policies on employee pay and to be proactive in any corrections to reduce the risks of a series of deduction claims.
If you are unsure of how to create a legally compliant contract, how holiday pay should be calculated or how to handle discrimination allegations around the holidays, seeking legal advice is crucial.
Why does the right support matter?
Holiday pay disputes can be time-sensitive and costly if not handled correctly, particularly if numerous employees are involved in the dispute.
Our expert team can review and update your contracts or policies to ensure your pay practices are compliant and minimise the risk of tribunal claims.
With the right preparation and legal advice, you can enjoy a productive and less stressful new year.
For tailored support on your holiday pay process or managing a dispute, contact our employment law team today.