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The Employer’s Guide to Annual Leave

Key Takeaways

1. Annual leave is the paid time off that an employee is allowed to take throughout the year. They are usually given a set number of annual leave days by the employer which is outlined in the employment contract or employee handbook in many cases.

2. Annual leave can also be called holiday leave, holiday pay, vacation leave or holiday entitlement. Annual leave is separate from unpaid leave and other types such as maternity and sick leave.

3. Many countries have a required statutory annual leave minimum amount that employers must offer to employees by law. Some organizations offer extra annual leave days as a discretionary benefit to their staff. This strategy not only attracts new talent and retains current employees, but also allows staff to have more of a rest from work, which benefits productivity levels overall.

4. Depending on which countries you are operating in, different annual leave requirements must be considered. It is therefore important for companies to keep updated with local regulations to ensure that they are complying with employment/labor law.

Giving employees the correct entitlements that they are legally owed is very important, not only to ensure that you are complying with the law, but also to maintain staff. In many countries, annual leave is a statutory entitlement that employees should get, but depending on the country and on the type of worker, different requirements must be met.

Annual leave may be calculated differently in some countries and the minimum amount of time a person should get can vary. For companies operating in different jurisdictions, they should be aware of these differences in order to be compliant with local laws and regulations. 

What is annual leave?

“Annual leave” also known as holiday entitlement, holiday pay, or vacation leave, gives an employee time off from work while still being paid by their employer. This is not to be confused with a workation, a working holiday, or a working vacation. During annual leave, there is no obligation for the employee to work during their time off.

For most countries, other types of leave would include maternity leave, paternity leave, sick leave or bereavement leave. Annual leave refers to time off for relaxing, holidays, family events such as weddings or emergencies. It is ultimately up to the employee how they use their time off. Employees can usually take annual leave for any reason they want, and it does not mean they have to take a holiday to be entitled to it.

Most employees are entitled to annual leave, and the number of days that they are allowed to take is dependent on the requirements of the particular country in which they are employed and the company policy. Some companies may choose to offer the “in-kind benefit” of more holiday days than the statutory requirement.

The number of annual leave days that a company gives to its employees will often be outlined in the employee handbook or employment contract so that the worker is aware of how many days they can take. Whilst annual leave is an employee benefit, most countries require that a minimum amount of annual leave allowance is offered to employees.

Annual leave entitlements should not be confused with holiday bonuses or 13th-month pay which are gifts given to employees as monetary rewards for good work.

It is usual that employers ask for notice of annual leave and require employees to ask for permission from management before having their time-off approved. In a lot of companies, the longer the time-off, the more notice they will need to approve it in order to ensure that the right amount of staff will be available to cover any work.

Sometimes, employers allow a maximum amount of holiday days that can be taken off at one time so that employees are not absent from work for long periods and so that they take breaks throughout the year to avoid burnout.

Employers may use annual leave entitlement as an extra perk to attract or retain employees by offering more holiday days than other employers do, or by offering extra days the longer an employee remains with the company.

From the employer’s perspective, annual leave is a cost of employment and constitutes part of the total labor burden

How is annual leave approached in different countries?

It is important that organizations are aware that annual leave is treated differently depending on the country. There are different employer obligations by law.

Annual Leave in the USA

In the USA, annual leave entitlement is accrued for federal employees depending on how long the individual has worked for the organization and the type of employment they have.

The general entitlement is calculated in the following way:

  • Full time employees with less than 3 years of service accrue 4 hours for each pay period.
  • Full time employees with 3-15 years of service accrue 6 hours for each pay period.
  • Full time employees with 15 years or more of service accrue 8 hours for each pay period.
  • Part time employees with less than 3 years of service accrue 1 hour for every 20 hours they work.
  • Part time employees with 3-15 years of service accrue 1 hour for ever 13 hours they work.
  • Part time employees with 15 years or more of service accrue 1 hour for every 10 hours they work.
There is no general statutory requirement for annual leave across the United States, though three weeks is a common standard
 

Annual Leave in the UK

Under UK employment law, employees are entitled to 28 days of paid annual leave per year. This includes 8 “bank holidays” or national/public holidays that must be taken and 20 days of chosen holidays.

Leave is calculated by setting out a “leave year” which is the time in which an employee can take their entitlement. If an employee starts the job part-way through the leave year then they will be entitled to a portion of holidays for that period.

The employment contract will outline whether an employee can carry over annual leave to the next leave year and if so, how many days are allowed.

In the UK, if an employee accrues annual leave over a period of time and then leaves the organization, and leave that they are entitled to that they have not used must be paid to them.

Annual leave in Australia

In Australia, full-time and part-time employees are entitled to 4 weeks of annual leave which is calculated based on their hours of work. Shift workers are allowed up to 5 weeks of annual leave.

Annual leave starts accumulating from the first day that an employee starts their role and continues through the years.  Holiday leave cannot accrue for periods of unpaid sick leave, parental leave, or unpaid annual leave.

Annual Leave in Spain

Employees in Spain are entitled to a minimum of 23 days per year of paid vacation, however 25 days is the standard. Leave days are prorated the first year, with the second year of working for the same company entitling the employee to the number of annual leave agreed to in the employment contract.. Employees can choose to take their holidays at various times throughout the year, or take them all at once.

If there are paid leave days left over at the end of the year, it is up to the employer to decide how to handle them; at the time of writing, there is no regulation regarding leftover leave days.

How can a global PEO help manage annual leave (and other types of leave)?

A global PEO (“Professional Employer Organization”) is a company that takes over as the legal employer of staff.  This means that a PEO takes over HR responsibilities such as taxes, employee contributions, benefits, and payroll, while the employee continues to work for the client company as normal.

For some organizations wanting to expand to international locations or that operate globally, a global PEO is a good solution as it takes over all employer obligations.

Using a global PEO is an effective way of expanding the business to different countries as it helps to streamline the process and saves on expenses that are usually spent on contracting multiple service providers: Global PEOs also have access to specialized and skilled workers which allows for a more efficient expansion.

A big challenge that companies often face when expanding to new jurisdictions is keeping up to date with new and changing local laws, including in relation to employee benefits and leave entitlements. Each country has different requirements when it comes to employee entitlements and taxes. Failing to comply can result in a company receiving sanctions or penalties and reputational damage. Global PEOs have specialist knowledge and expertise in employment and HR across many jurisdictions around the world which ensures that client companies remain compliant.

Horizons Administers Annual Leave Entitlements for Global Teams

Horizons works closely with client companies to ensure that they are complying with international labor and tax laws when it comes to hiring, payroll, taxes, and managing holiday bonuses and annual leave.

If you are looking to expand internationally and need help understanding annual leave or any other leave, do not hesitate to contact us today.

Frequently Asked Questions (FAQ)

Yes, annual leave is a paid holiday entitlement. It allows employees to have time off whilst not sacrificing their pay.
Annual leave can be used for anything that the employee would like to spend their time doing. Some people use it to take holidays, others may use it to relax or decorate their home, spend time with family or attend appointments. In a lot of countries there is specific leave for maternity and paternity and sickness.

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