Vinita Arora: Is unlimited holiday a positive reward strategy or a potential headache?

Vinita Arora

In a changing workplace where job seekers increasingly value work-life balance over remuneration, some are turning to unlimited annual leave to attract top talent.

In theory, flexible holiday can make commercial sense, as happier staff are generally more productive. However, there can be pitfalls, both legally and practically.

Legally, employers are required to ensure that staff have the opportunity to take 5.6 weeks’ paid leave per year. Employers offering an unlimited allowance would still need to monitor employees’ holiday to ensure they are taking their statutory minimum entitlement.

The carry-over of leave is another complex issue. Employees returning from family-related and long-term sickness absence may have significant additional accrued holiday entitlement; this should be monitored particularly carefully to ensure that they do, in effect, carry over to the next holiday year at least their statutory minimum entitlement.

The introduction of an unlimited leave policy will lead to a change to employees’ contracts of employment, which will require their consent. If the unlimited leave supplements statutory provisions, employees are unlikely to object, but those who already have generous entitlements may prefer to stay on fixed leave.

Once implemented, the policy will usually be deemed a term of employees’ contracts and the employer will need their consent to revert to fixed holiday if it does not work out. It would also be extremely difficult to terminate employees for abusing the policy.

Practically, employers need to consider issues such as whether the profile of the workforce means that certain periods, such as school holidays, will be popular for leave, potentially leading to resourcing issues. If managers retain the right to reject leave requests, this needs to be monitored to ensure that it is fair and non-discriminatory.

Unlimited leave can bring benefits for both employers and employees, but it needs to be carefully managed, both in its implementation and operation.

Vinita Arora is employment partner at DLA Piper