More staff holiday at less cost?
The economic downturn has resulted in less business for many companies, which means less work for staff. Is offering some employees the chance to buy extra annual leave one way to balance the workload and save money?
Ultimate overtime
The Sunday Times recently covered the case of council officials who were selling back part of their holiday entitlement. By law, they could only sell entitlement to annual leave that is over and above the statutory minimum, yet this was still earning them up to £12,000 a piece. Contrast that to the private sector where firms are asking employees to take pay cuts, unpaid leave, work for free (British Airways) or flipping the council scheme on its head and asking them to buy, rather than sell, extra annual leave.
More leave please
It’s a possibility that you’ve already been approached by staff asking if they can boost their annual leave entitlement. And they can - by buying some extra time off.
Tip. The beauty of such an idea is that you can choose how to operate your company’s buy-back scheme. For instance, it can work as a standalone benefit, or be integrated into a flexible benefits package, if you offer one.
Know the limits
On April 6 2009, the statutory holiday entitlement increased to 5.6 weeks (28 days), including bank holidays, for full-time workers (pro rata for part-time workers). Employees can thus only buy holiday above this limit.
Tip 1. You might want to put a sensible limit on the extra holiday staff can buy from you, e.g. five days maximum.
Tip 2. Don’t forget, this scheme is designed to suit your business, so you could make it subject to a qualifying period of service, e.g. two years, and set restrictions on when the leave can be taken/how much can be taken in one chunk.
What’s the cost?
For each day of leave that you allow an employee to buy, you can save yourself one day’s gross pay along with any National Insurance that would have been payable. To calculate the cost of a single day’s holiday, take an employee’s salary and divide it by the number of days they work. A full-time employee (working five days per week) will have a total of 261 working days per year (365 less 52 x 2 = 104). The employee’s salary is then divided by this number to work out the daily pay.
Tip. If you haven’t been approached by employees about this idea, then it might be worth raising it with them. If they’re a basic rate taxpayer then one extra day’s holiday will only cost them 69% of their gross daily pay.
What you’ll save
The amount you save depends on the salary and the amount of holiday the employee wants to buy back. Example. Miss Smith is a basic rate taxpayer; her salary is £20,000; she works a five-day week; her current holiday entitlement is 25 days (excluding bank holidays) so the cost of a day’s holiday to Mrs Smith is £76.63 (£20,000 ÷ 261). The table shows what Miss Smith will save you, and what you could save if 10% of a 100-strong workforce took up the same offer.
| Staff | Days bought | Extra holiday saving | NI | Total saved |
| 1 | 5 | £383.15 | £49.04 | £432.19 |
| 10 | 50 | £3,831.50 | £490.43 | £4,321.93 |
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