As an employer, it’s important to have a crystal clear annual leave policy in place. Whether it’s an unlimited holiday allowance, one that aligns with the statutory minimum paid holiday entitlement, or one that outlines a specific number of days leave unique to your business.
Over the last decade, we’ve seen more and more businesses offering staff opportunities to purchase, sell or bank their leave entitlements. But what does this mean for employers? And is this a good idea for all businesses?
Here, I delve into the pros and cons of flexible annual leave policies for
Benefits of allowing employees to buy, sell or bank their leave
What key positives can come from providing your employees with a flexible annual leave policy?
Staff motivation and productivity levels
Providing more flexibility as to how many days per year your staff can choose to either work or take off work can be hugely beneficial from a motivation perspective. If your workers are able to take extra leave, this can often allow them to attend events or go on holidays they would usually have to miss out on – especially if these are unexpected or they’re running low on annual leave.
Having something to look forward to, such as a holiday or extra days off work can have a profound effect on our productivity levels. A study conducted by Oxford University in partnership with BT found a conclusive link between happiness and productivity levels in the workplace. Happy workers were found to be 13% more productive, working faster and even making more sales.
Work/life balance
Being able to bank leave and carry it over to the following year or buy additional leave can help provide your employees with that all important time and space to prioritise rest and self care. This is not always possible, as many employees end up using their leave to fulfil childcare responsibilities, run errands or tackle household chores. But the important thing is – flexible annual leave policies can give your staff more volition, giving them more control over what they’d like to do with their time off work. In fact, these types of policies, such as UPTO (unlimited paid time off) have even been found to markedly improve employee retention.
Improved relationships between managers and employees
Providing your staff with more freedom can be a great way to improve the relationships between management and employees. Not only does it help to convey friendly values, but it also helps to facilitate trust – which is one of the key foundations of positive professional relationships and mutual respect in the workplace. Back in 2018, global tire manufacturing giant, Michelin, initiated a corporate liberation campaign, which enabled workers at their German factories to set their own work and holiday schedules. It was a gamble – but it paid off – as they were ranked America’s Best Large Employer the very same year.
Reduces annual salary bill and NI contributions
Another benefit of enabling staff to buy extra days’ annual leave is a saving in annual salary costs and national insurance contributions. This can provide you with additional funds that ordinarily you wouldn’t have access to – which can be put into other parts of the business.
Drawbacks of flexible annual leave policies
As with any business decision, there are both pros and cons associated with introducing a more flexible annual leave policy for your staff.
Financial implications for staff
Some workers may choose to buy extra annual leave and then find themselves in a difficult financial situation, regretting their decision to do so. Unfortunately as an employer, this is outside of your control, as ultimately it’s up to each individual employee what they decide to do with their annual leave allowance. However, having a concrete policy in place with less flexibility can of course negate this risk.
Employee burnout
Giving your workers the opportunity to carry leave over to the following year or sell some of their leave can lead to many individuals only taking a fraction of the amount of time off they need to be able to recuperate and switch off. A recent study conducted by staff leave planner Timetastic found that just 28% of male workers and 49% of female workers in the UK take all of their annual leave allowance.
Male employees are also more likely to book annual leave than a sick day to address mental health issues they experience. As an employer, it’s critical to be mindful and considerate of your staff’s needs, particularly when it comes to reducing the possibility of burnout.
Pressure from management
Timatastic’s study surveyed nearly 1,500 UK workers in December 2022, asking them for reasons why (if at all) they didn’t use all of their annual leave allowances that year. The results found that more than 1 in 10 employees didn’t take all of their annual leave last year because of pressures from their managers. This absolutely has to change. It’s all well and good introducing new policies that allow unlimited time off, or the ability to buy and sell leave – but if managers cause staff to feel coerced into not taking the leave they’re entitled to, then ultimately businesses are setting themselves up for failure.
Administrative concerns
Another issue with changing these policies is administrative concerns. It’s important to set our clear rules surrounding your annual leave policy. For instance, how many days can an employee sell back or carry over each year? Does this change depending on how long you’ve worked for the company? Can employees change their minds and ask to buy leave back? Who will manage these requests? These are all important questions you should ask yourself before making changes to your current system.
Final word
A flexible annual leave policy can be an excellent way of building mutual trust with your workers, creating a happier and more positive work environment and even boosting productivity levels. But it’s also important to consider potential drawbacks of introducing schemes such as this, both from the point of view of your workforce and the business as a whole.
If you do decide to change your business’ annual leave policy, be sure to consult advice from a HR professional or business adviser to ensure you can put measures in place to avoid any discrimination, resentment among staff and loss of earnings.
