Purchasing additional holidays

Andrew Tomlinson – HR Broadcast – the purchase of additional holidays.

An employee benefit that is becoming increasingly popular, especially in larger organisations, is the buying or selling of annual holidays.

Please allow me to explain the current requirements as regards holidays. All employees who work five days per week are entitled to 5.6 weeks’ holiday under the Working Time Regulations 1998. This equates to 28 days’ leave per annum. Those who work fewer days per week are entitled to statutory holiday on a pro rata basis.

Many smaller employees only offer the statutory minimum holiday entitlement and for some employees this will be sufficient. For others it will not be enough. This might be because an employee has travel plans or other commitments etc. This is where the purchasing of additional days holiday may be a useful benefit to offer.

If you did this, how would this work in practice and why might it be a good idea to implement such a policy? In the event of an employee buying extra holiday from you, as opposed to you just giving them some extra days off, it will be something like a salary sacrifice arrangement. That means their annual salary will temporarily go down, but they will be taking more time off.

If you did implement such a scheme, the good news is that you, as the employer, will have plenty of discretion in how you allow employees to buy extra holiday. For example, you could have a one-off arrangement with an employee, or you could roll out a scheme to all staff. The latter has financial advantages for you; for each day of leave that you allow an employee to buy, you can save yourself one day of gross pay along with the employers’ NI that would have been payable. 

It is also good for the employee who buys additional holiday who will also benefit financially because they will save tax and NI on this perk. This is particularly advantageous for higher rate taxpayers. If you want to introduce a “buy extra holiday” scheme, I strongly recommend that you do not grant an open-ended entitlement and the amount of extra days that can be purchased on top of existing holiday entitlement is limited, e.g. to five or ten days.

You can also make this type of perk subject to a strict qualifying period of service, such as two years. That being said, bearing in mind the financial benefits, you can make it a day one perk if you wish but be careful with that.

As this scheme should suit you, there is no reason why you cannot set restrictions on when any extra leave purchased can be taken, e.g. you can prohibit additional leave during peak business and holiday periods. You can also still limit the maximum of amount of holiday that an employee can take at any one time.

To make your life easier, do not allow last minute or same year requests. Instead, require employees to submit a request to buy holiday say no later than one month prior to the end of your current holiday year in respect of the following holiday year. This will ensure you have adequate staffing levels plus you will only have to deal with applications once per year.

Ensure you have a robust policy in place to cover this subject. In the opening line I mentioned buying and selling. If your current entitlement is more than the statutory minimum you can allow employees to sell annual holidays back to you, provided they take at least the statutory minimum of holidays outlined above.

Head of Human Resource at Nicholsons Chartered Accountants Lincoln HR