The law on this has recently changed in respect of statutory annual leave. The European Court of Justice has ruled that a period of illness whilst on holiday does not count towards the entitlement to annual leave and, as such, any employee who is ill during their holiday can request replacement leave to cover the period of ill health.
Your employees can only recover the period of time during which they were actually ill so the remaining period of holiday will stay as annual leave. Make sure that your staff are aware that if they will want to convert a period of holiday into sick leave then they will need to comply with the company sickness policy as far as is practicable. If the period of ill health will last beyond 7 days then they will need to provide medical evidence to recover this time as sickness.
If holiday is converted to sick leave then your employees will only be paid in accordance with your companys sick pay
rules and they need to understand that this could reduce their income over this time, particularly if you only pay SSP and do not pay for the waiting days. If you have any bonus schemes that are calculated by considering sickness absence then this converted period of leave will be counted. Similarly, if targets were adjusted to allow for a period of annual leave then they will have to be recalculated to take into account that the leave period is shorter.
Employees can choose not to recover the period of leave but you cannot force them to keep this time as holiday. Alternatively, you may want to set up a clear policy that says periods of sickness cannot be covered with holiday which may make it easier for you to manage absence.
If you have any queries regarding sickness policies or annual leave, call through to the Advice Service on 0844 892 2772. Someone is available 24 hours a day, 365 days a year to help deal with all your queries.