What Is Annual Leave? All Your Questions Answered

As you develop your employee benefits package, you need to make key decisions on how and when your team can take paid time off work. An employee’s yearly allowance of paid vacation days is called “annual leave”, and it’s regulated by local labor laws.

You must ensure your annual leave policy complies with these laws, or you could face legal action. Compliance is especially complex and time-consuming if you’re building a global team, as you’ll need to abide by the laws of multiple jurisdictions, which can differ significantly.

In this guide, we answer all your questions about annual leave and provide a simple, time-saving solution for global compliance, too.

Annual Leave Meaning

Annual leave is a type of leave that allows employees to take a specific amount of paid time off work within a given year. It may also be called “vacation leave” or “annual vacation.” Most jurisdictions worldwide have regulations that determine minimum (statutory) leave requirements that employers must follow.

These requirements will likely affect:

• Who’s entitled to leave, and how much they’re entitled to.
• How much an employee should be paid while on leave.
• The amount of notice required to take leave.
• Any other special conditions or circumstances related to leave.

In addition to statutory leave, private employers can choose to offer a more generous annual leave policy as part of their employee benefits packages. This can give your company a competitive edge to attract and retain better talent, particularly in countries with low minimums.

How Does Annual Leave Work?

When an employee wants to take annual leave, they should make an annual leave request to their manager, who’s in charge of approving it. An annual leave application is usually made through an HRIS system, which provides a streamlined process through automation. Once approved, the employee takes the scheduled time off work and, in most cases, they receive pay as normal.

While on annual leave, employees typically don’t need to perform any of their usual duties or respond to work emails. One of the primary purposes of annual leave is to give employees sufficient opportunities to rest and re-charge.

Who’s Entitled to Annual Leave?

Annual leave entitlement is different in every country. It may also vary from employer to employer. Full-time and part-time employees are normally entitled to paid time off, while independent contractors are not.

However, there may be certain criteria an employee must meet to be eligible for annual leave, such as a minimum length of time at the company or a minimum number of hours worked per week, month, or year.

Personal Leave Vs. Annual Leave Vs. Sick Leave

In most parts of the world, annual leave is treated separately from sick leave and personal leave. While annual leave can be used for any reason, sick leave is specifically intended for health-related purposes. Personal leave can be another name for sick leave but may also incorporate things like family emergencies.

Like annual leave, the amount of paid sick days or personal days an employee is entitled to depends on local laws or individual employment contracts.

However, in the US, employers generally don’t make a distinction between paid annual leave and paid sick leave. This is because there’s no federal obligation to provide either. Instead, employers often offer “paid time off” or “personal time off” (PTO) as an employee benefit. PTO typically combines vacation days, sick days, and personal days into one yearly allowance.

How Much Annual Leave Per Year Do Employees Receive?

Local labor laws and individual employment contracts determine how much annual leave an employee is entitled to each year. Statutory minimum leave days vary considerably around the world, ranging from zero days (the US) to around 30 days (Brazil, Peru, UAE, among others).

These minimums may be inclusive or exclusive of public holidays and non-working (rest) days. For example, in Ecuador, employees are entitled to 15 calendar days of paid leave annually, inclusive of rest days. If an employee takes a vacation before a mandatory rest day (Saturdays, Sundays, or holidays), those rest days are counted as part of their total annual leave entitlement.

Statutory minimums may also depend on the employee’s length of service, seniority, type of profession, or age. In many countries, the longer an employee has worked for their employer, the more annual leave days they’ll accumulate. This is the case in Malaysia, for example.

Check out our separate article to find out which countries offer the most generous annual leave entitlements in the world.

How Is Annual Leave Calculated?

To compute statutory annual leave for your employees, you need to understand all the local regulations that govern eligibility and entitlements. You will also need to know your employees’ length of service and their contract type (full-time/part-time), as well as any other details regulations require.

Once you know all these details, you can easily calculate their entitled annual leave allowance. Some local governments even have annual leave calculators to help you out, like this one for UK employees.

Let’s take the UK as an example, where the annual leave calculation is as follows:

Number of days per week x 5.6 = paid annual leave (capped at 28 days)

As such, a UK-based employee who works full-time (five days a week) is entitled to 28 days of annual leave. According to labor law, the employee’s annual entitlement may include the eight public holidays observed in the UK, but that’s left to the employer’s discretion.

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Additional Annual Leave FAQs

We’ve covered the most common topics about annual leave, but here are some more FAQs to help you further understand your obligations as an employer.

Can Employees Carry Annual Leave Over to the Following Year?

It depends on local regulations; some countries give employees the right to carry unused leave into the next year, while others don’t. As long as you meet minimum requirements, your company’s annual leave policy can allow employees to roll over as few or as many annual leave days as you want.

How Much Notice Do Employees Need to Give for Annual Leave?

Again, this depends on local regulations. If no regulations determine the length of notice required to make an annual leave request, you can decide how long notice should be within your own annual leave policy. Generally speaking, the longer the length of leave requested, the longer the notice should be.

When Can Annual Leave Be Taken?

Some jurisdictions give employers the right to deny annual leave requests or restrict when leave can be taken, such as during busy periods. However, you must not stop your employees from taking the minimum leave requirements they’re entitled to in a given year. If you do, you may incur fines or face legal action.

How to Calculate Annual Leave Payout?

When an employee leaves your company, you may be required to pay them for the annual leave days they haven’t taken. This is often called an “annual leave payout.”

To calculate the amount owed, you need to know the employee’s accrued annual leave (the number of days they’ve built up) and how much of it they’ve already taken or will have taken by the last day of their employment. You then multiply the daily leave pay rate by the number of annual leave days they haven’t taken.

In some cases, you may be able to require your employees to take unused leave days during their notice period instead of receiving a payout.