For September 2023, we have asked the employment team at Tughans LLP to provide practical answers to unusual, sensitive or complex work-related queries. We call this feature “How do I handle it?”

The articles are aimed at HR professionals and other managers who may need to deal, from time to time, with the less commonplace disputes at work; issues that may, if handled incorrectly, lead to claims of discrimination, constructive dismissal or some other serious difficulty.

This month’s problem concerns:

“We have recently conducted a survey among our staff and several employees have asked about the possibility of increased flexibility with annual leave. We are considering setting up a scheme to give  employees the option to buy and/or sell their holidays, although we are not fully informed on the “dos and don’ts” involved with such a scheme. How should we handle this?”

Under The Working Time Regulations (Northern Ireland) 2016, (WTR) workers have a statutory right to paid annual leave. An employer may also allow additional contractual annual leave. Failure to observe your obligations under the WTR could result in potential claims to the Tribunal alleging breach of the WTR and/or for unlawful deduction of wages.

Annual leave entitlement will depend on the employee’s working pattern. Full time and part-time workers are entitled to a minimum of 5.6 weeks paid statutory annual leave, with part-time workers’ entitlement being calculated on a pro-rata basis depending on their working hours. If you employ seasonal staff or those with irregular working hours, you should be aware that the process for calculating holidays for these types of workers has recently changed as a result of the Supreme Court decision in Harpur Trust v Brazel [2022] UKSC 21.  

Introducing a buy/sell holiday scheme could be a positive way of demonstrating your commitment as an employer to help achieve a positive work-life balance for your employees. This can also be advantageous for employers in that it may increase employee morale and productivity. By giving your employees added control over how they use their holidays, they may have the option to take more time off when they need it, or alternatively, sell their excess holidays instead of losing them when the holiday year renews.

Before you introduce a buy/sell holiday scheme, there are various important points you may wish to consider. As a starting point, it is advisable to have a policy governing any new scheme, or at the very least include a specific section on the scheme in your employee handbook. If you have an existing holiday policy in place, you could update this policy to include reference to the new scheme.

The policy should clearly outline the conditions for employees to buy or sell leave. This should include your preferred limit on how many days employees will be allowed to buy and/or sell. You must ensure that selling holiday entitlement does not cause employees to fall below the statutory minimum entitlement stipulated in the WTR.

The policy should set out the adjustments that will be made to employee’s pay if they decide to buy or sell holidays. You should also confirm when the relevant adjustment will be made, will it be made in the same month as the request is made/approved, the date the holiday is sold, or used?

Calculating the cost of leave will depend on the employee’s working pattern as outlined above. If the employee opts to sell leave, they should receive a payment for the number of days sold, in excess of their statutory minimum entitlement. When selling leave, the salary received for the sold days will normally be subject to tax and National Insurance in the normal way. On the other hand, buying holidays is done by way of salary sacrifice and a deduction will be made from the employee’s salary for the number of days bought.

It is important that any deductions (and information relating to them) are clearly communicated to the employee, and the employee signs the appropriate consent before any deductions are made. Failure to do so creates a risk of potential claims for lawful deduction of wages.

You may also wish to consider how an employee should notify you of their intention to buy or sell their annual leave. It may be useful to require employees to submit a formal request, and you should also consider the appropriate individual to whom requests should be made (i.e. line manager, team leader, or HR).

You should reserve your right to refuse requests to buy or sell leave and confirm that approval of requests is subject to the operational needs of the business. If, after due consideration, you reject a request, you should explain the reasons for rejection to the employee. You must consider all requests fairly and reasonably, as any differential treatment could result in claims for discrimination.

You should clarify that the scheme is discretionary and may be terminated at any time. It is important that employees know they do not have a contractual right to buy and sell annual leave. On this basis, you should avoid making reference to the scheme in the contract of employment but prepare a policy as suggested above.

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