From 1^st April 2007 all your employees will be eligible for four weeks' annual holiday once the employee reaches their next leave anniversary.   While this doesn’t happen until next year, you do need to take account of the changes.  In real terms, the new entitlements will begin to accrue this year; though of course will not be taken until next year. 

You need to think about each employee, when their leave anniversary date is due, when they will move from three to four weeks’ annual leave entitlement and therefore when you will need to accrue at four rather than three weeks.  While most payroll systems will automatically do this for you, it will pay to check and talk to your payroll provider.  You will also need to budget for the extra obligation.  If you don’t allow for the accrual this year, you will face an unplanned dollar burden of extra holiday pay in 2007. 

The new leave entitlement is a legal minimum, not an extra week for everyone.  Employees who may already have four weeks’ annual leave in their employment agreements do not automatically have this increased to five.  Any increase in holiday allowance over and above four weeks can only be by negotiation between the individual employee and employer.   

How it works

1. Employees accrue their four weeks’ annual leave entitlement from the next leave anniversary after 1^st April 2006.
2. Employees who have four weeks’ annual leave prior to 1^st April 2006 do not automatically get another week
3. For employees being paid as they go because of a fixed term contract or casual employment will move from 6% to 8% on 1^st April 2007.

Termination

An employee who leaves their job:

Before 1^st April 2007 and before their next leave anniversary date receives payment for any annual leave from previous anniversary dates at the greater of average or ordinary earnings and 6% of gross earnings for the period between their last anniversary date and the termination date.

Before 1^st April 2007 and has worked for less than 12 months receives 6% of their gross earnings since they started work less any paid annual leave they may have taken in advance during this period.

After 1^st April 2007 but before their next leave anniversary date receives payment for any annual leave from previous anniversary dates at the greater of average or ordinary earnings and 8% of gross earnings for the period between their last anniversary date and the termination date.

After 1^st April 2007 and has worked for less than 12 months receives 8% of their gross earnings since they started work less any paid annual leave they may have taken in advance during this period.

Employing

If you employ a new member of staff between now and 1^st April 2007, the employment agreement should contain a minimum of three weeks’ annual leave.  However, you should accrue leave in your payroll system at 8% since the employee will be due four weeks annual leave once they have completed 12 months service.  This would be after 1^st April 2007.

However, if a staff member employed before 1^st April 2007 leaves before 1^st April 2007, then they would only be due 6% of their gross earnings since they started work, less any paid annual leave they may have taken in advance.

From 1^st April 2007 you should ensure that all employment agreements allow for a minimum of four weeks’ annual leave.  This may mean updating your agreements but can be simply done with an addendum. 

Employees with four weeks' entitlement before 1^st April 2007

Some companies offer increased holiday entitlement to staff to reward long service or because of the seniority of the position.  You may need to consider the ramifications on productivity and morale if you choose not to retain the benefit.  Many staff may argue that their terms of employment have effectively been reduced as what is now seen as a benefit or bonus becomes standard.

In the case of long service leave,  companies commonly give one week extra leave to those staff who have been with the company longer than five or ten years.  Consider how you might feel if you had been rewarded in this fashion for your loyalty only to find that someone else who has been with the company only 18 months also gets four weeks’ leave.   For more senior staff who view the extra weeks’ leave as part of their remuneration package, you may want to consider including the value of the extra week in the next salary review rather than increasing their annual leave allowance by a further week to five weeks. 

From 1^st April 2007 there will be no legal obligation to offer more than four weeks’ annual leave, any increase from this would be by negotiation.  However, it is important to check the wording of the employment agreements.

While advocating reward for longevity of service, the reality may mean that you can no longer offer the benefit for financial reasons.  If you do decide to remove long service leave, don’t forget to alter your employment agreements and remember that some of your staff may still be eligible.  Before making any changes you should check the wording of the clause that deals with long service leave.

For example some agreements express long service leave as follows:

“Permanent employees are entitled to extra annual leave when they reach the following years of service:
After 5 years’ service one extra week
After 10 years’ service two extra weeks.”

Staff with a clause like this would still be entitled to extra time over and above the minimum four weeks' annual leave.  However, if the clause said:

 “On the completion of five years' continuous service with the Employer, the Employee becomes entitled to four weeks’ annual leave.” you would have no increased obligation after 1^st April 2007.

For more assistance contact info@hughesdirect.com or call 0508 HRHELP