The default rule on annual leave in the UK is simple: use it or lose it. Employees are expected to take their leave within the leave year, and anything untaken at the end of the year is gone.
Most small employers leave it at that. But there are several important exceptions, the rules were updated in January 2024, and getting it wrong can leave you exposed to claims for unpaid holiday, particularly when an employee leaves.
This post covers the carry-over rules clearly, including what changed in 2024, when employees are entitled to carry leave over, and how to manage it practically in a small business.
The basic principle: use it or lose it
Employees accrue statutory annual leave throughout the year and are expected to take it within their leave year. If they choose not to take it and there is no contractual or statutory reason to carry it over, it lapses at the end of the year.
This is the general position, and it is the right default. Unlimited carry-over can create headaches: large accrued balances that are difficult to manage, awkward conversations about people taking extended leave, and a potential liability if someone leaves with a large outstanding balance.
That said, there are clear circumstances where carry-over is not just allowed but legally required.
When carry-over is a legal right
Maternity and family-related leave
If any worker is unable to take some or all of their statutory holiday entitlement as a result of taking a period of maternity or other family-related leave, they are entitled to carry forward up to 28 days of their untaken leave into the following leave year.
Family-related leave includes maternity leave, paternity leave, shared parental leave, and adoption leave. Employees continue to accrue leave throughout these periods, but they cannot take annual leave while on maternity leave. So it is common for someone returning from maternity leave to have a meaningful balance to carry over.
The important practical point: this carried-over leave does not vanish at the end of the next leave year automatically. Employees should be given a reasonable opportunity to take it.
Sick leave
A worker is entitled to carry over only 4 weeks of annual leave as a result of taking sick leave in any leave year. In cases where leave is carried over as a result of sick leave, annual leave must be taken by the end of the period of 18 months from the end of the leave year in which the entitlement originally arose.
So if an employee is off sick for a significant part of the year and cannot take their leave as a result, they can carry over up to four weeks (20 days for a full-time employee). That carried-over leave must then be used within 18 months of the end of the leave year in which it was accrued. After that, the right is lost.
Employer failure to facilitate leave
Regulation 13 leave may also be carried over into the next and any subsequent leave year where an employer fails to recognise a worker's right to annual leave, fails to give the worker reasonable opportunity to take the leave or encourage them to do so, or fails to inform the worker that any leave not taken by the end of the leave year will be lost.
This one catches employers out. If you have not actively encouraged an employee to take their leave, or if you have not made clear that untaken leave will lapse, you may be required to carry it over regardless. The liability can build up over several years if the issue is not addressed.
What changed in January 2024
The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023 came into force on 1 January 2024. For most small employers with regular-hours staff, the practical changes are modest, but worth knowing.
The reforms largely codified existing case law into statute, making the carry-over rights described above explicit in UK law for the first time. They also introduced new rules on holiday pay and entitlement for irregular-hours and part-year workers, which is a more complex area we have touched on in the bank holidays and part-time workers post.
For regular-hours employees, the key takeaway from January 2024 is that the carry-over entitlements for sick leave and family leave are now clearly set out in statute, not just derived from case law. That makes them easier to understand and harder to argue around.
What about discretionary carry-over?
Above and beyond the statutory minimums, you can choose to allow employees to carry over leave as a matter of policy. Many small businesses do allow a small amount of carry-over, typically up to five days, as a goodwill gesture and to avoid a rush of leave requests at the end of the year.
Workers can normally carry over a maximum of 8 days into the next leave year with the agreement of their employer. If a worker gets more than 28 days' leave, their employer may allow them to carry over any additional untaken leave.
If you do allow discretionary carry-over, it is worth setting a clear limit and an expiry date, such as "any carried-over leave must be taken by the end of March." Otherwise, balances can drift and become difficult to manage.
What happens to untaken leave when someone leaves?
When an employee leaves part-way through a leave year, they are entitled to be paid for any statutory leave they have accrued but not taken. This applies whether they resign, are made redundant, or are dismissed.
If someone leaves with a large untaken balance because you did not encourage them to take leave or did not make clear that it would lapse, you may owe them more than you expected. Keeping on top of leave balances throughout the year, and actively prompting people to take their holiday, is the simplest way to avoid that situation.
Conversely, if an employee has taken more leave than they have accrued at the point of leaving, you may be able to deduct the excess from their final pay. That right needs to be explicitly set out in the employment contract.
Practical steps for small employers
Set a clear leave year and communicate it. Employees should know when their leave year starts and ends, and that unused leave will generally lapse at the end of it. If your contracts do not specify a leave year, it defaults to the employee's start date anniversary, which can make managing a team complicated.
Keep leave balances visible. If you can see who has untaken leave building up, you can act early. Encourage people to take leave before it lapses rather than dealing with a rush at year-end.
Have a written policy on carry-over. Even if it just confirms the use-it-or-lose-it default, a written policy makes your position clear and reduces the chance of disputes.
Track carry-over separately. If you do carry leave over, make sure it is recorded clearly and that any expiry date is noted. Mixing carried-over leave with the current year's entitlement without labelling it is a reliable way to create confusion.
Be especially careful when someone returns from maternity leave. They may have a significant carried-over balance and will need flexibility to take it. Plan that in advance rather than discovering it when they are back.
A quick summary
Most annual leave should be taken within the leave year. But carry-over is a legal right in three circumstances: when an employee has been on maternity or family-related leave, when they have been unable to take leave due to sickness, and when an employer has failed to properly facilitate leave. The rules were codified in statute in January 2024. Beyond the statutory minimums, you can choose to allow a limited amount of discretionary carry-over, but setting a clear limit and expiry date is important.
For context on the broader annual leave rules, the annual leave basics post covers entitlement, accrual, and how to handle requests. And if you are tracking leave in a spreadsheet and finding it hard to keep on top of balances, Absently gives everyone a clear, real-time view of what they have left. Thirty days free, no credit card required.