What do UK employers need to know about annual leave in 2026?

Annual leave is no longer just a compliance task. For growing UK businesses, it is a strategic tool. Mismanage it, and you’ll face burnout, high turnover, and legal risks. Get it right, and you’ll build a resilient, engaged workforce.

As HR and finance leaders in 2026, you are navigating a complex landscape. The labour market is tight, well-being is a priority, and a number of rules are evolving. Managing holiday requests and calculating pay is a huge burden, especially as you scale. The spreadsheet that worked for 10 employees will fail at 50.

This article is your guide to the current scenario of annual leave. We will cover the legal baseline, crucial 2026 rule changes, and the policies that set winning companies apart, to help you ensure your approach to paid time off brings a competitive advantage.

What are the UK annual leave legal requirements for 2026?

Your first job is 100% compliance. The law is your foundation.

The statutory minimum: 5.6 Weeks

The basics remain. Nearly all UK workers are entitled to 5.6 weeks of paid annual leave.

For a full-time employee on a five-day working week, this is equivalent to 28 days. This entitlement applies to all workers, including on part-time and casual contracts, calculated on a pro-rata basis. Your employment contract must state if this 28-day entitlement includes or is in addition to public bank holidays, which can vary by country within the UK. This 5.6-week right is the legal minimum. Many employers offer more. You can find the core government guidance on holiday entitlement on their official gov.uk website.

The big shift: irregular hours and part-year workers

Here is the key change for 2026. New rules for ‘leave years’ starting on or after 1st April 2024 are now standard practice. These changes target ‘irregular hours workers’ (e.g., zero-hours contracts) and ‘part-year workers’, a common example being term-time staff.

Two major changes apply:

1. New accrual method: You can now legally calculate holiday entitlement for these workers as 12.07% of the hours they worked in a pay period.

2. Rolled-up holiday pay: This is now legal only for these two types of workers. You can pay an uplift of 12.07% on top of their normal wage, which represents their holiday pay. This must be a separate item on their payslip.

While rolled-up pay simplifies admin, be cautious. The worker receives no pay when they actually take time off, which can discourage breaks. ACAS provides a clear breakdown of these new rules.

How can annual leave be used as a retention strategy?

For a growing business, the statutory minimum is not enough, because your annual leave policy is a powerful signal of your company culture.

Winning the war for talent

Top candidates look at the total package. A company offering the bare minimum 20 days plus bank holidays is simply far less attractive than one offering 25 days plus bank holidays.

Enhanced entitlement shows you trust your team and invest in their work-life balance. In a global market, many UK employers are playing catch-up with other countries that have more generous leave. Consider offering more days based on service, a ‘duvet day’, a paid day off for birthdays, or even a holiday purchase scheme to give employees more flexibility.

Tackling burnout and leave liability

You have a problem if your team is not taking their holidays. It is bad for their mental health and creates a financial liability of unused leave on your balance sheet.

The real cost is a tired, burnt-out workforce. As a HR or finance leader, you should track unused days throughout the year, and monitor whether managers are creating a culture where it feels impossible to take a week off.

This is where an automated platform is vital. Moving away from spreadsheets to PayFit’s leave management features gives everyone a clear, real-time view of leave balances. You can therefore immediately spot burnout risks, and proactively encourage employees to book time off.

How to manage annual leave in a growing business?

As you grow, so does complexity. Juggling requests, ensuring fair pay, and handling policy questions becomes a full-time job.

Building a watertight annual leave policy

Your first line of defence is a clear, accessible annual leave policy. This should be your single source of truth, integrated into your HR system, not a static PDF.

Your policy must clearly define:

• The leave year: e.g., 1st January to 31st December.

• Request and notice: how to request leave and the necessary notice period (e.g., notice that is twice the length of the requested leave).

• Handling clashes: the process for managing overlapping requests.

• Carry-over rules: whether unused days can be carried into the next year (e.g., a maximum of 5 days, to be used by 31st March).

• Blackout periods: any critical business periods where leave is restricted.

The holiday pay calculation conundrum

This is a major compliance minefield. Holiday pay is not just basic pay. A worker’s holiday pay must reflect their ‘normal’ wage.

You must include regular payments such as commission, regular overtime, and performance bonuses. For workers with variable pay, you must use a 52-week reference period to calculate their average pay. This is complex and risky to do manually. An error can lead to an employment tribunal.

Getting this right is therefore a complex but non-negotiable part of calculating holiday pay correctly, which is why an automated payroll system is the only scalable solution.

Juggling sickness, requests, and leavers

You must also manage exceptions. If an employee is sick during annual leave, they can report it as sick leave and reclaim the holiday days. Your policy must be clear on how this interacts with your UK sick pay entitlement rules.

An employer can refuse a leave request for a good business reason, like a peak trade period, but you must give proper notice (at least as long as the leave requested). Finally, when an employee leaves, they must be paid for any accrued but untaken statutory annual leave.

A proactive approach to annual leave is essential. By blending compliance with a supportive culture, you can turn paid time off into one of your greatest assets.