What happens when employees don't use all their annual leave before the year ends? Carry-over rules are one of the trickiest areas of UK employment law. Get them wrong, and you could face tribunal claims. This guide explains exactly what the law says, when carry-over is mandatory, and how to build a policy that protects your business.
UK annual leave is governed by the Working Time Regulations 1998. The statutory minimum of 5.6 weeks (28 days for full-time employees) is actually made up of two distinct portions, and each has different carry-over rules:
This distinction matters. An employer can lawfully apply "use it or lose it" to the 1.6-week top-up, but cannot do so for the 4-week EU-derived portion if the employee was genuinely unable to take it.
Regardless of your company policy, there are situations where the law requires you to allow carry-over of the 4-week EU-derived leave:
Employees on maternity, adoption, or shared parental leave continue to accrue annual leave throughout their absence. Since they cannot take holiday while on statutory leave, any untaken leave must be carried over. There is no cap on how much can carry over in this situation.
It is good practice to encourage employees to take accrued leave before or after their maternity period to avoid large carry-over balances building up.
The landmark case Plumb v Duncan Print Group (2015) confirmed that employees who are off sick and unable to take their holiday can carry over up to 4 weeks (20 days) of unused leave into the following leave year. This applies to the EU-derived 4-week portion only.
The carried-over leave from sickness must be used within 18 months of the end of the leave year in which it accrued. After 18 months, it expires. This time limit was confirmed by the Court of Justice of the EU and adopted into UK case law.
If an employer refused leave requests, discouraged employees from taking time off, or failed to give employees a reasonable opportunity to use their holiday, the full untaken amount must carry over. Employers have a duty to actively encourage employees to take their leave and to warn them that it will be lost if not taken.
Most UK employers set their own carry-over rules for any leave above the protected 4-week minimum. Here are the most common approaches:
| Policy type | How it works | Best for |
|---|---|---|
| No carry-over | All unused leave is forfeited at year-end (only lawful for the 1.6-week top-up) | Businesses that want to encourage leave usage |
| Up to 5 days | Employees can carry over a maximum of 5 days, to be used by a set deadline | Most SMBs — balances flexibility with control |
| Up to 8 days with deadline | The full 1.6-week top-up carries over but must be used by 31 March (or another date) | Larger organisations with January–December leave years |
| Unlimited carry-over | All unused leave rolls forward indefinitely | Rare — can create large liabilities on the balance sheet |
Whichever policy you choose, it must be clearly stated in the employment contract or staff handbook. Employees should be reminded of deadlines well in advance.
A "use it or lose it" policy can be applied to the 1.6-week statutory top-up (8 days for full-time employees) without issue, provided it is written into the contract.
However, applying "use it or lose it" to the 4-week EU-derived portion is risky if:
In practice, if an employee was fit, available to work, and had a genuine opportunity to take their leave, the 4-week portion can also be forfeited. But employers carry the burden of proof — you must be able to show that you encouraged the employee to take their leave and gave clear warning that it would expire.
When an employee's employment ends (whether by resignation, redundancy, or dismissal), they are entitled to be paid in lieu for any accrued but untaken annual leave. This applies to both the 4-week and 1.6-week portions.
Conversely, if an employee has taken more leave than they have accrued at the point of termination, the employer can deduct the overpayment from their final pay — but only if the employment contract allows it.
Holiday pay in lieu = (Annual salary ÷ 52 ÷ Days per week) × Untaken days
Example: An employee earning £30,000/year who works 5 days/week and has 4 untaken days:
(£30,000 ÷ 52 ÷ 5) × 4 = £461.54
For employees with variable pay (commission, regular overtime, shift allowances), the calculation must reflect their normal remuneration — not just basic pay. This was established in the Bear Scotland v Fulton and Lock v British Gas rulings.
Manually tracking carry-over in spreadsheets is a recipe for errors and disputes. Leavely automates the entire process: