Annual Leave Management: A definitive guide for employers 

Annual leave is defined as an allotted number of days that an employee may take as paid time off (PTO) work. This time off can be used for anything the employee wishes, such as holidays and personal events or even just as time to relax.  

In the UK, full time employees are entitled to 5.6 weeks of annual leave. A full-time worker on a 5-day working week will be entitled to 28 days of annual leave. During those annual leave days, employees are paid in full, however, there are options to take unpaid leave also. It’s important to clarify whether employees can take unpaid leave in your company policy documents. Annual leave will also vary depending on the type of employees you have. To discover more about holiday entitlement for different kinds of employees, read our article ‘A guide to holiday entitlement for UK employers’. 

The benefits of taking annual leave include a potential reduction in the chances of burnout and an increase in employee wellbeing generally. There are several strategies you can employ to promote a healthy workforce, which we cover in our article, ‘7 Ways To Effectively Reduce Absenteeism in the Workplace’. Burnout has the potential to be quite costly for businesses, therefore taking annual leave is important. A survey by Mental Health UK revealed that one third of young people (aged 18-24) have taken time off due to stress levels. 

Does an employee need to give notice of their annual leave? 

In short, yes. Company annual leave policy will determine what kind of notice is required for booking annual leave. Giving enough notice allows the business to manage various spells of annual leave and schedule the workforce more effectively. Ultimately, this can help to avoid any disruption to the business. Generally, the employee will need to give between 2-4 weeks of notice, but the employer may have discretion to accept holiday requests with less notice. These factors depend on the current workload and the relationship between the employee and the business. 

Are there different types of annual leave? 

There are many different types of leave, and they cover various reasons why an employee may be absent. Your annual leave policy can set our rules for different forms of leave from the three statutory types: 

• Annual leave 
• Sick leave 
• Maternity/paternity leave 

Optional leave: 

• Mental health days 
• Charity days 
• Compassionate leave 
• Religious/cultural days 

Offering extra holiday days, like cultural leave and charity days can set your business apart. Employees often look for the best benefits when applying to businesses, and annual leave can be another tool to make you an employer of choice. 

Is there a maximum amount of annual leave you can give to employees? 

There’s no legal guidance for maximum number of annual leave days you can offer. Many companies will often reward employees with additional leave based on long service. When paired with a positive work culture and growth opportunities, extra annual leave can serve as an excellent driver of long-term retention. A survey by FRS Recruitment also found that 58% of respondents would want their company to implement an ‘unlimited leave’ policy. An unlimited leave policy allows employees to take as much time off as they want, as long as their responsibilities are met. There are pros and cons to such a policy; it may encourage a strong culture of trust, but it does also require clear guidelines, and there is potential for inequality across the workforce. 

How does your annual leave policy impact wellbeing? 

When employees struggle to take time off due to restrictive policies or unclear guidelines, it can lead to stress and burnout. Workload can snowball and performance can suffer as they’re given little time to recharge. A policy that is overly stringent can lead to a company culture change where employees feel hesitant to take leave. This can lead to more absences, higher turnover, and lower morale. However, a good leave policy can help prevent these problems by investing in wellbeing. Clear communication, simple processes, and a work-life balance culture are key. Encouraging breaks, flexibility, and fair access to leave boosts engagement and productivity. Resources like mental health days and manager training further support a positive, productive environment where employees feel valued. 

Given the importance of leave management and the nuances involved, it’s no surprise this area of people management often leads to confusion, compliance issues and grievances among staff. And the last thing any HR professional wants is to waste valuable time manually tracking and approving annual leave or worrying about staying compliant. 

Impacting your workloads and business continuity 

Well-structured leave policies can often lead to a stronger overall system. These policies can reflect well in employee satisfaction and productivity, for several reasons. Firstly, managing annual leave effectively can help with business continuity. With integrated software, you can view all of your employee’s scheduled holidays. With the data in place, your business can make informed decisions about when to allow more holiday bookings. 

It can be detrimental to productivity and workload distribution to leave departments shorthanded. Without the requisite staff on hand, the remaining staff member could end up with too much work. When an overload occurs, your productivity and customer experience could drop. This can have a long-term impact on your business as customers may remember negative experiences more vividly than positive ones. 

Annual leave tracking to help stay compliant 

Annual leave compliance will concern the statutory allowances your employees are entitled to. This may vary depending on which country you are based in, or if you operate internationally. For example, the statutory holiday allowance for the UK is 28 days. However, Research by the Trades Union Congress (TUC) in 2024 revealed that more than one million British workers did not receive any paid time off, resulting in a collective loss of £2 billion in holiday pay. This issue disproportionately affected Black and minority ethnic workers, as well as those in low-paid roles such as waitstaff, carers, and catering assistants.  

In the case of a large-scale multinational business, you may need to adhere to various labour laws. These laws could include holiday allowance, break patterns, shift patterns, and others. Comprehensive annual leave management software can provide you with guidelines specific to the countries you operate in. This is one of many features that can make your life easier. You also may have an option to set country-specific terms for holiday accrual, carryover, and unpaid leave. 

Many calendars will highlight public holidays. However, a Staff Holiday Booking System can integrate those public holidays into the booking system. Therefore, if an employee chooses to book a holiday, and a public holiday falls on one of those days, it will not take it from their overall allowance. This feature can save a lot of hassle for HR and management teams. 

Non-compliance can have detrimental effects on your company brand and reputation. It may also incur some form of fine. Therefore, it is important to have a clear and precise leave policy in place. The policy will be available to employees to access whenever required. Any amendments, with the help of an integrated leave management system, will notify employees of any changes and ask them to review. 

Employee wellbeing and retention

Effective annual leave management  can have beneficial effects for your employees. By having transparency about policy and easy access to book holidays, employees may feel more inclined to use all their allowance. Employees can book their holidays straight through the mobile app and send alert notifications to managers. Managers can approve those requests directly through email and on any device. Leave management is available from the office to the field in systems like Staff Holiday Booking Software. 

Employees who take regular annual leave can be more productive, engaged, and less likely to burn out. However, that’s not often the case. Research conducted by NatWest Premier has found that nearly half of all Brits (45%) will not use their whole allowance. On average, 5 days are not being taken per person every year. 

Not taking holiday allowance can be due to several reasons, including financial ones. Ultimately, this can take its toll on employee wellbeing and absence costs rise. To see how you can help to improve employee wellbeing and the benefits of doing so, read our ‘Ultimate guide to workplace wellbeing’. 

Wellbeing and engagement tend to go hand in hand. Moreover, these are important factors that can influence the level of retention your business has.  

It’s important to track and manage annual leave effectively for several reasons. One of the most effective ways is to employ integrated annual leave management software. Employing such a system can have a positive impact on the maintenance of a balanced and productive workforce. 

Managing leave requests effectively with a self-service portal 

The online portal of an annual leave management software will allow employees to access and book holidays in a few clicks. The self-service aspect of the porta makes it simple for employees to access holiday bookings anywhere, on any device.  

Once those requests are put in, it is beneficial to respond promptly. This requires workflows to be set up correctly; managers will need to respond in good time and seek further approval if required. Employing software that supplies your employees and managers with pop up notifications is also beneficial, as they promote promptness. A quick and efficient response can help your employees focus on their work, rather than potentially worrying about the holiday approval. When the system is able to highlight any clashes that could occur and affect productivity, the manager approving the annual leave has one less thing to worry about. 

A robust annual leave policy 

Developing a clear policy that is easy to understand is essential to fostering a workforce culture that focuses on wellbeing. The policy should be clarified early on in the onboarding process. This allows the employees to look ahead to utilising their annual leave. 

Communicate the leave entitlement, request process, blackout periods, fair allocation, and the tracking system efficiently. 

Automation and the role of AI 

Workforce management, on a smaller or larger scale, can benefit from automation. Moreover, AI-enabled systems, can offer data driven insights into your employee's annual leave. Your business can leverage AI to feed real-time data to your management teams. From this data, you may be able to predict absenteeism trends. Perhaps more importantly, you can optimise workforce allocation and cover any staffing gaps that pop up. Predictive analytics can also highlight any potential staff shortages and help you make strategic decisions about your workforce. 

Employees can utilise AI features, like a chat bot, to get quick answers about their leftover annual leave. This takes another piece of admin away, making the whole process much more user-friendly. Employees can also directly ask the AI copilot to book holidays through the system, rather than navigating to the tab themselves. 

Developing an annual leave policy is the first step for many organisations in effective annual leave management, and can help promote wellbeing and improve retention. There are several steps you can take to build out this policy: 

• Get to know your team: Understand individual roles and responsibilities, which can help you plan for absences. 
• Set clear guidelines: Communicate a clear policy to all employees regarding procedures, notice periods, approval processes, and restrictions. 
• Encourage early planning: Proactive early planning can help you avoid bottlenecks and shortages by optimising workforce management. 
• Fair treatment: Evaluate requests fairly, in light of project commitments and team workloads. 
• Maintain open communication: Discuss holiday considerations and plans openly to allow for planning as well as promoting wellbeing. 
• Build a cross-training culture: Cross-training can help to reduce impact on workflows when employees take annual leave. 
• Manage leave conflicts effectively: Address overlapping leave fairly, promptly, and diplomatically; look for alternative solutions like staggered leave. 

1. Manual processes 

HR teams often get bogged down by the repetitive admin involved with keeping accurate and up-to-date records of individual holiday entitlements. The right Leave Management Software can make a world of difference by automating key parts of the process whilst reducing the reliance on outdated systems and spreadsheets.  

2. Human error  

Frequent changes and last-minute requests can sometimes be missed by managers, especially during busy periods of the year. Ideally, your HR team should be managing leave from a single source of truth, where all data is logged, shared and automatically updated whenever a change is made.  

3. Preventing disengagement 

It is beneficial for managers to communicate with individuals about how many days they have left, and by which date they need to use them. If employees lose out on holiday entitlement without being given fair warning, they can quickly become disengaged. Again, an intuitive self-service HR platform can make it easy to keep track of holiday entitlement and keep staff informed of how many annual leave days they have left to take.  

4. Holiday bottlenecks 

Juggling annual leave ‘bottlenecks’ at peak times of year such as Christmas can be tricky. If you are worried about being understaffed during such periods, it might be worth discussing a policy with staff which ensures everyone can take a minimum or maximum number of days whilst still making sure enough people are able to work. 

5. Addressing emergency and last-minute absences 

These absences can happen at any time, to anyone. As such, it is important that they are handled fairly and in line with your policies. For example, it is beneficial to include in your policy how many unplanned absences are acceptable within a given timeframe. Establish how an employee can contact the business in an emergency, or if they don’t have the capacity to do so. In these situations, it is useful to have a contingency plan in place. These plans may rely on some cross-training of staff to pick up on projects, or the adjustment of deadlines. 

Managing annual leave can be done more hands-on with a leave plan and spreadsheets, or you can automate the process with software, like Staff Holiday Booking Software. 

A leave plan sets out the annual leave entitlement for employees, and once signed, covers the business legally. However, annual leave tracking and management is still down to the business. Businesses may look towards spreadsheets in this scenario. Whilst cheap to use, they rely on manual data input and intervention to check scheduling. A spreadsheet also doesn’t provide any insight into frequent sick leave or even handle approvals. 

The alternative is a software solution, like Staff Holiday Booking Software. Employees can manage their own holiday requests and submit them for approval. Employers can view calendars, insights, and annual leave reports that can highlight issues like absenteeism or frequent sick leave. As part of a wider HR suite, staff holiday booking software can effectively manage annual leave and relay all the information into payroll. The adjustments are then seamless and require significantly less human intervention. 

Having an integrated HR system will not only allow you to manage your employees annual leave, holiday entitlement and pay with ease, but also provides a more streamlined booking process where employees can see their entitlement. Employees can also request or cancel leave at the touch of a button. This self-service feature is a wonderful way to engage employees and help them plan their time effectively. 

The approval process can sometimes become an issue, particularly when a manager is on annual leave themselves. However, in annual leave management software like the Staff Holiday Booking System, you can set up workflows that delegate approval up the funnel. Therefore, the employee does not need to wait for their manager to return to approve their annual leave. A feature like this can be beneficial for employee satisfaction as their request is dealt with promptly. 

Some of the best staff holiday booking systems will have integration with a whole suite of HR software. This feature can be beneficial as amendments are fed directly into payroll; for example, if an employee chooses to utilise an employee benefit salary sacrifice scheme, like Holiday Trading, the system will track this. It will then relay the information throughout the suite and adjust payroll accordingly. Benefits like Holiday Trading can save money for employees and the business; if you’re keen to find out how, head over to our new report ‘How employee benefits can help offset NI and wage increases’. 

As we've explored, effective annual leave management has many advantages for both organisations, and employees. By prioritising clear policies, efficient tracking systems and employee self-service you can foster a workplace culture that values wellbeing, promotes productivity, and ensures compliance.  

Investing in robust annual leave management software can streamline processes, reduce errors, and provide valuable insights to optimise workforce planning. Whilst a standalone Staff Holiday Booking System is the preferred option for small organisations or those looking to migrate away from spreadsheets, an all-in-one HR software suite is usually the most efficient way to track and manage annual leave for large and growing businesses. An end-to-end system would ensure data throughout the employee lifecycle is joined up and you can start to use your people analytics to make business decisions. 

Ready to take your annual leave management to the next level? Explore one of the features of our HR software suite, our user-friendly Staff Holiday Booking System and discover how it can help improve engagement and productivity.  

Want more tips and tricks about optimising your workforce management processes? Take a look at the Workforce Management episode in our Do the Best Work of Your life expert panel series.