Buying And Selling Of Annual Leave (Holiday) – How Does It Work?

Why many employers in the UK have begun to introduce a ‘buying and selling annual leave (holiday) scheme’

Employers have begun to value the fact that employees need to have a good work-life balance in order to maintain their morale and productivity. Working all year round with just the standard 20 annual leave days plus 8 bank holiday days, can be exhausting. Some employers also include bank holidays in their 20 annual leave days, too. Introducing a buying and selling annual leave scheme can be an effective way to introduce more flexibility and freedom for a company’s employees.

If an employer enables a scheme where employees are able to buy annual leave days, it can give employees additional time off when they really need it as they may not qualify for ‘other leave’. Employees also have the opportunity to sell any unused annual leave back to the employer. A ‘buying and selling annual leave scheme’ is also known as ‘holiday purchase’, ‘buy/sell scheme’ or ‘holiday buyback scheme’.

How a holiday purchase scheme benefits employers

• Job Satisfaction: Offering additional leave helps employees balance their work and personal lives better, leading to higher job satisfaction.
• Retention: Satisfied employees are more likely to stay with the company, reducing turnover rates and the associated costs of recruitment and training.
• Controlled Costs: Employers can manage costs better as employees essentially fund their additional leave through salary sacrifice.
• Reduced Overtime: More balanced workloads and rested employees can reduce the need for overtime pay, leading to cost savings.

How does a buying and selling annual leave (holiday) scheme actually work?

1. Buying annual leave – Annual leave is typically purchased through the payroll system and is calculated with their monthly salary. The additional annual leave days will be charged at the employees’ standard daily rate or slightly lower. Leave can be purchased each month, throughout the year, or all in one go.
2. Selling back unwanted leave – Employee can sell any unwanted leave back to the employer with their agreement, again through the payroll system. Once the leave is paid back, it can then become available for other employees to purchase.
3. Eligibility and conditions – Employers may want to set eligibility criteria and terms and conditions for the scheme. Criteria should be set on what the maximum amount of leave can be purchased, and the length of service required before participating in the scheme. Include any restrictions, such as minimum and maximum days which can be sold back to the employer and the timeframe for this to happen.

How can these holiday buyback schemes be managed?

Managing a buying and selling annual leave scheme requires clear policies and careful administration to ensure fairness and consistency. Companies need to establish guidelines outlining eligibility, the maximum number of leave days that can be bought or sold, and the time frame for transactions. Transparent communication is crucial, informing employees about the benefits and potential impacts on their pay and work-life balance. 

Often this type of scheme is managed by payroll. However, if you have already implemented an HR information system (HR database), then employees and their managers can review requested leave, taken, purchased and sold back to the employer, over and above the standard annual leave they are entitled to. Periodic reviews and employee feedback can help refine the scheme, ensuring it meets both organisational goals and employee needs effectively.

Can I have different annual leave schemes for groups of employees?

The scheme needs to be fair and reasonable for all employees. However, it is possible for you to allow certain employees to have different holiday arrangements, as long as it’s not discriminatory, is set out in individual contracts of employment and complies to UK employment law.  

Employees are entitled to at least 5.6 weeks (28 days) of paid holiday per year, if they are working at least a 5-day week. Employees would still need to have the statutory entitlement after you’ve bought back any leave.

Applying the buy-back only to certain groups of workers and not others could raise issues if it’s seen as unfair or discriminatory, or it can cause disputes among staff, so it’s not always good practice. An example of good practice could be to offer a buy-back scheme for a particular group of individuals for 10 days of leave, if this group of people were on different contracts (terms and conditions) or working patterns to other groups of employees, this scheme could be justified. 

Should an employee raise a grievance about the equitability of the scheme, the organisation would be expected to show the business rationale and ensure that no discrimination or breach of contract occurred.

Breathe HR database solution

If you do not have an HR information system in place, we recommend using Breathe HR. Breathe HR is easy to implement and use. It is also very cost-effective compared to other HR software providers. Breathe HR can be downloaded as an app or used online via their website. Managers can have access to all their employee information and full personnel file at the click of a button: sickness absence, leave, HR documents, company HR policies, qualifications and more.

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Breathe HR software costs as little as £18/month. The costs depend on the size of your organisation.

Drafting an HR policy

It’s essential for an employer to have an HR policy which defines the annual leave buy-back scheme and how it differs from the standard annual leave policy.

The policy will need to outline:

1. Definition
2. Eligibility and criteria
3. How the pay-back scheme is calculated (i.e. based on the employee’s daily salary)
4. Any tax implications, deductions and exemptions

When our clients (employers) introduce a scheme, we ensure employees and managers are provided with support to implement the scheme and guidance on how the scheme works, along with a thorough HR policy.

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