The summer holiday season is upon us and ensuring business operations are undisturbed whilst complying with annual leave obligations under the Working Time Regulations 1998 takes careful management.
The Working Time Regulations 1998 (WTR) set out the law on annual leave. These regulations have undergone significant changes in recent years, including the new obligation to keep records of annual leave and pay (in place since April 2026).
During the summer months, the likelihood of more employees wanting to take annual leave or having to take other time off within a concentrated timeframe is increased, therefore heightening the potential for issues to arise. Below, we look at some of those issues and how they can be resolved.
Keeping annual leave records
From 6 April 2026, under the Employment Rights Act 2025 (ERA 2025), employers are legally required to keep records of annual leave and holiday pay for six years. This applies to all types of leave and pay, ensuring transparency and compliance with statutory obligations.
Employers can maintain these records in any format they reasonably consider appropriate. However, failure to keep adequate records constitutes a criminal offence and could result in fines. Additionally, if records reveal underpayment of holiday pay, employers may be required to make up for the shortfall and could face penalties of up to 200% of the underpaid amount (capped at £20,000 per affected individual). This penalty can be reduced by 50% if it is paid within 14 days.
Cancelling annual leave
Should an employee’s plans change, and they no longer need to take leave that they have already booked, there is no obligation to allow it to be cancelled — but it would be reasonable to consider doing so if possible. The circumstances may dictate the decision, e.g. short-notice cancellations may be tricker because cover may have already been arranged which cannot be changed.
Where the cancellation request cannot be accepted as a whole, it may be that some of the days can be cancelled, allowing the employee to take at least some of the leave at another time.
Whatever the decision, it should be communicated to the employee as soon as possible so they can make an informed choice about what to do. If cancellation is permitted, the employee should be told that they are still expected to take all their annual leave in the current leave year and that, in accordance with organisational policy, any leave not taken in the current leave year will be lost. If some carry-over is permitted, the employee should be reminded of the limitations of this.
Sickness during annual leave
If an employee is unwell during or immediately prior to pre-booked annual leave, they may be unable to take the leave as planned. Where this happens, they can ask to take any holiday lost whilst they were sick at a later date.
Any such period of sickness will have to be proven and is subject to the usual rules governing the entitlement to Statutory Sick Pay, such as a fit note. The employee will have to report their sickness in accordance with any sick leave policy. It is recommended that the employee receives written confirmation of their remaining holiday entitlement should this happen. If it is not possible to take the re-gained holiday during the same holiday year, then an employee could be permitted to carry any holiday lost due to sickness absence forward into the next holiday year.
