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Is an Annual Leave Purchase scheme the key to balancing budgets and life?

26 March 2024

Is an Annual Leave Purchase scheme the key to balancing budgets and life? More time off means extra opportunities to enjoy what really matters, and when employees purchase additional annual leave via your employee benefits offering, it reduces your wage bill. Let’s explore what an annual leave purchase scheme can do for your people and business.

Do your employees use all their annual leave?

The statutory minimum holiday allowance in the UK is 28 days, and employers aren’t obligated to roll over any unused annual leave allowance to the following year.

If your employees don’t use their full allowance, they’re essentially working those unused days for free. This may seem good for businesses – at first glance – but the reality is that employees who don’t have a healthy work-life balance and take time for themselves are more at risk of burnout and lower levels of engagement.

Every business will have a group of people who will use all their annual leave allowance and still want more. The flip side is that many employees need encouragement to use their annual leave.


Why aren’t all employees using their annual leave allowance?

Employees not using their annual leave allowance may appear more committed or dedicated. Or perhaps their workload is unmanageable, and they feel pressured to over-perform… there are always two sides to every story.

What we can guarantee is that employees who don’t take time away from work aren’t prioritising their wellbeing and could actually be less productive than their more rested colleagues.

Employees who use their total annual leave allowance are 40% more productive, engaged, and motivated (HR Locker).  


A spotlight on industries

Stress, workload, and perception of being in ‘competition’ with colleagues are some reasons why employees may not use their annual leave allowance. Some industries see this trend more than others.

Data from 2023 saw a 9.11% decline in annual leave taken by employees in the financial services sector (PeopleHR). As professions go, financial services are known to be high-pressured and competitive, so it’s understandable that a culture of over-working could be prevalent.

This isn’t good for people or businesses.

Employees aren’t machines, and they can only work at full speed for so long. Over time, their speed will decline, as will their physical, mental, and emotional health unless they have a healthy work-life balance.


What encouraging employees to use and purchase annual leave can do for your business…

Culture matters, and a culture of high stress, excessive workload and lack of employee wellbeing isn’t sustainable. The next generation of workers is prioritising their wellbeing, favouring flexible employers and jobs with great work-life balance.

Nobody wins when an employee runs themselves into the ground.

Mental ill health causes 63% of long-term sickness absences, which hits an organisation’s bottom line.

We discuss the importance of a healthy work-life balance in our blog, The importance of work-life balance & how employers can enhance it.  

Businesses that encourage employees to use all their holidays and offer the opportunity to purchase annual leave in addition to the statutory allowance benefit from:

  • Reduced absenteeism
  • Increased engagement
  • Less employee turnover
  • More creative and productive employees.

Then there’s the savings…

The benefits mentioned above all protect and enhance your organisation’s financial health, but as an employee benefit, an Annual Leave Purchase Scheme brings further savings.    

The table below presents an example of the savings a business can make for every employee who takes advantage of their ability to purchase annual leave.


Annual leave example savings table


The figures are approximate since NI Contributions are changing, but they show where employers can make significant savings.

An Annual Leave Purchase Scheme is a cost-neutral employee benefit, and payroll savings offset the implementation costs. Strategically, cost-neutral employee benefits are an effective way to fund other wellbeing initiatives, enhancing employee health and happiness.

Big on savings, low on admin!

The process is simple. An employee purchases extra holiday allowance, you deduct the cost over their monthly salary throughout the year, saving you money on your wage bill! 

We provide you with an Employer Administration Portal where you can track and manage Annual Leave Purchase Scheme requests, as well as SmartPay, Cycle to Work, and any other salary sacrifice schemes you have with us. Once you approve an application, the monthly salary deductions will automatically begin, and your employee will receive a notification of approval.

Easy reporting functions and personal notifications keep you on top of your scheme with minimal administration required.


Championing Equity

There is a conversation to be had regarding equity, and yes, we mean equity, not equality.

The statutory holiday allowance is set across the board for all, but not every employee uses it for themselves.

Working parents with children at school need to consider the 13 to 15 weeks of school holidays. With childcare costs so high, many parents use their allowance to look after their children outside of term time.

It’s still a break from work, though, right?  

The answer to this may differ depending on who you ask…

Drilling down further, in heterosexual couples, it is mothers who, often due to the gender pay gap, are using their paid annual leave to avoid expensive childcare (HR Magazine). This may well be a personal preference, but many decisions are driven by necessity since the cost of childcare during the school holidays will fall into the thousands.

There’s a difference between how an employee may feel after returning from a family holiday and how they’ll feel after returning to work after solo-parenting for a week or two. We’re not suggesting that one gender or working parents should receive a higher statutory allowance. However, it’s beneficial to understand how your employees use their allowance. Are they resting and recharging or running themselves ragged?

If your employees aren’t managing to fit self-care into their statutory allowance because they’re predominantly using it to care for others, then the opportunity to purchase extra annual leave to use for their own emotional, physical, and mental revitalisation would do them a world of good.


More balance, more opportunities to thrive!

Just under 61% of workers didn’t take all their annual leave in 2023 (Timetastic). We've explored some possible reasons throughout this blog, and much of this comes down to culture and mindset.

We’ve also highlighted the risks of burnout and the benefits of an Annual Leave Purchase Scheme, including substantial savings to payroll budgets.

Ready to benefit from healthy employees? Arrange a call today.


Employee benefits and wellbeing guide 2024




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