Long-Term Sick Leave Holiday Pay Guide

Employees on long-term sick leave often raise questions about their holiday rights. HR professionals and business owners must understand the legal framework governing entitlement, accrual, carry-over and payment of annual leave during extended sickness absence. Getting this wrong exposes employers to unlawful deduction claims, Working Time Regulations breaches and, in some cases, discrimination risk. Clear internal processes supported by accurate legal understanding will help prevent disputes and maintain compliance.

What this article is about:
This article explains the rules on holiday entitlement and holiday pay for employees on long-term sickness absence. It covers how holiday accrues during sickness, whether employees can or must take annual leave while off sick, how much leave can be carried over, and what employers must pay on termination. The guidance is designed for HR professionals and business owners who need a practical, legally accurate explanation of how holiday and long-term sickness interact under UK employment law.

Section A: Holiday Accrual During Long-Term Sickness

Employees on long-term sick leave continue to build up statutory annual leave. This principle is set by the Working Time Regulations and confirmed through case law. HR teams must understand the distinction between statutory and contractual entitlements so policies are applied lawfully and consistently. Failure to recognise ongoing accrual can expose employers to significant liabilities, particularly where sickness spans multiple holiday years. It is also important to distinguish between the core four weeks of EU-derived leave and the additional 1.6 weeks of UK domestic leave, as different rules apply to pay and flexibility.

1. Statutory vs contractual annual leave

Statutory annual leave consists of 5.6 weeks per year. Four of these weeks come from EU-derived rights and carry specific protections, including rules on sickness, carry-over and the requirement that holiday pay for this element reflects the worker’s normal remuneration. The additional 1.6 weeks is domestic UK leave with slightly more flexibility in how it is treated, including how holiday pay is calculated, provided the worker still receives at least basic pay for this element.

Employers may offer extra contractual leave beyond the 5.6 weeks, which is treated separately. During long-term sickness, employees continue to accrue all statutory leave. Employers can limit or suspend accrual of purely contractual holiday if the contract expressly allows this, though most do not. Where employers adopt consistent discretionary practice around additional contractual leave, such practice may over time create implied contractual rights, so any changes should be carefully assessed and documented.

2. Accruing holiday during sickness absence

Long-term sickness does not pause or reduce an employee’s statutory holiday entitlement. Even where an employee receives only statutory sick pay or no pay at all, entitlement continues to accumulate at the normal rate throughout the period of employment. This applies to all employees with statutory holiday rights, including those in their first year of employment. Once an employee has started work, their statutory leave year continues to run and holiday continues to accrue even if they are absent for the whole of that year.

Employers should maintain accurate records through HR and payroll systems so that entitlement remains transparent. This includes separating out the four weeks of EU-derived leave from the additional 1.6 weeks and from any extra contractual holiday, so that different rules on carry-over and holiday pay can be applied correctly.

3. Removing enhanced contractual leave during long-term sickness

Where contractual policies or contracts of employment permit, employers may restrict the accrual of enhanced contractual holiday during long-term sickness. This must be drafted expressly and unambiguously. Employers cannot remove any part of the 5.6 weeks statutory entitlement, but they may set rules on additional leave, provided the employee has clear notice of the terms and those terms are not applied in a discriminatory way.

Any attempt to suspend or reduce the accrual of contractual leave during long-term sickness should be handled through a lawful consultation and variation process. Employers should also consider how any longstanding discretionary practices around contractual leave during sickness may have become implied terms, and should obtain advice before making significant changes that could impact employees already on long-term sick leave.

4. Impact of SSP and Company Sick Pay on accrual

Holiday accrual does not depend on whether an employee receives SSP or enhanced company sick pay. An employee continues to build up statutory leave regardless of pay status, as long as the employment relationship continues. This means that even employees on nil pay after the expiry of company sick pay or SSP still accrue statutory holiday entitlement.

For contractual leave, entitlement depends on the wording of the employment contract or policy. Some employers link accrual of enhanced contractual holiday to periods of active service, while others maintain full accrual regardless of sickness. Employers should ensure that payroll and HR systems reflect ongoing accrual of statutory leave and any agreed rules for contractual leave, even when pay reduces or stops, and that staff communications accurately reflect these arrangements.

Section A Summary
Employees on long-term sick leave continue to accrue statutory annual leave in full for the entire 5.6 weeks under the Working Time Regulations. The core four weeks of EU-derived leave attract stricter protections, including the requirement to pay holiday at normal remuneration, while the additional 1.6 weeks and any contractual leave can be treated more flexibly, subject to clear contractual wording and consistent practice. Employers must ensure their internal systems, policies and contracts accurately track and document holiday entitlement throughout the sickness period, and distinguish carefully between statutory and contractual elements to avoid disputes and ensure lawful management of employees’ rights.

Section B: Taking Holiday While on Long-Term Sick Leave

Employees on long-term sickness absence are legally entitled to take paid annual leave if they request it. HR professionals must balance this right with operational needs while ensuring decisions are consistent, lawful and well documented. Understanding when employers can refuse or require annual leave helps prevent disputes and ensures Working Time Regulations compliance. Employers should also remain alert to Equality Act considerations, as many long-term health conditions may qualify as disabilities requiring reasonable adjustments in how holiday is managed.

1. Employee right to request annual leave during sickness

Employees can choose to take holiday while they remain signed off sick. This applies even if they are receiving SSP, company sick pay or no sick pay at all. Holiday taken during sickness must be paid at the employee’s normal holiday pay rate for the EU-derived four weeks, not their sick pay rate, and at least basic pay for the additional 1.6 weeks unless the contract provides for more. Employers cannot block requests arbitrarily, and any refusal must be for a legitimate business reason applied in line with the organisation’s normal holiday procedures.

Where an employee’s condition amounts to a disability, employers should consider reasonable adjustments when handling holiday requests, including flexibility around timing or procedure. A blanket refusal or overly strict process may create discrimination risks.

2. Employer ability to refuse holiday requests

Employers retain the right to refuse annual leave requests if there is a valid organisational reason, provided the refusal is communicated clearly and in accordance with the Working Time Regulations notice rules. Employers cannot refuse leave solely because the employee is off sick. Blanket policies prohibiting holiday during sickness are unlawful and present significant risk, particularly where the employee is disabled under the Equality Act.

HR teams should document refusals and ensure consistent application. Decisions should be carefully justified, especially where employees have accrued substantial leave and are approaching carry-over deadlines or termination. Poorly reasoned refusals may create liability under both the Working Time Regulations and the Equality Act.

3. When employers can require annual leave to be taken

Employers may require employees to take annual leave during long-term sickness, but only if they provide the correct statutory notice. This is generally double the length of the leave to be taken (for example, 10 days’ notice for 5 days’ leave). However, compelling employees to take annual leave during sickness should be approached with caution. If an employee is so unwell that they cannot meaningfully benefit from rest, forcing holiday may raise risk under case law and the Equality Act, particularly where the underlying condition qualifies as a disability.

Employers should document their reasons for requiring annual leave and consider whether alternative approaches may be more appropriate. In cases involving disabled employees, reasonable adjustments may include postponing compulsory leave or agreeing a more flexible approach to its timing.

4. Interaction with phased return programmes

During a phased return, employees remain entitled to use holiday if agreed. Employers sometimes use annual leave to top up hours during a staged return, but this must always be voluntary. Employers cannot pressure or require an employee to use holiday to supplement reduced hours or earnings during a phased return, as this may undermine sick pay entitlements and present discrimination risk.

Any agreement to use annual leave during a phased return should be genuinely employee-led, properly recorded and paid at the appropriate holiday pay rate. Using holiday to support a phased return can be helpful where it meets the employee’s needs, but it must never be imposed or implied as a condition of returning to work.

Section B Summary
Employees on long-term sick leave have the right to request annual leave and be paid normally for the EU-derived four weeks and at least basic pay for the additional 1.6 weeks. Employers can refuse requests for legitimate business reasons and may require leave to be taken only with proper notice, but decisions must be made carefully to avoid discrimination risks. A cautious, well-documented and employee-centred approach is essential, particularly when dealing with disabled employees or employees undertaking phased returns.

Section C: Carrying Over Holiday After Long-Term Sickness

Carrying forward unused holiday after long-term sickness is one of the most common areas of confusion for employers. The Working Time Regulations, supported by key case law, provide specific protections for employees who are unable to take statutory leave because of sickness. HR teams must understand which elements of annual leave can be carried over, how long for and what limits apply to contractual leave. Equality Act considerations also play a role, as disabled employees may require adjustments to how carry-over rules are applied.

1. 18-month carry-over rule from end of leave year

Employees who are unable to take their four weeks of EU-derived statutory leave because of sickness can carry it forward for up to 18 months from the end of the holiday year in which it accrued. This protection operates even where the employee could technically have taken leave but was genuinely off sick and not in a position to benefit from it. The additional 1.6 weeks of UK statutory leave does not carry over automatically unless the contract, policy or established custom and practice provides for it.

Employers should track leave year by year to avoid disputes as the 18-month deadline approaches. Once the 18-month period expires, the carried-over EU-derived leave lapses and does not need to be paid on termination. This is a critical compliance point often overlooked by employers.

2. Case law: HMRC v Stringer, Plumb v Duncan Print Group, King v Sash Window Workshop

Case law underpins the carry-over rights of employees on long-term sick leave:

• Stringer v HMRC confirmed that workers continue to accrue paid holiday while off sick and can claim unpaid holiday pay as an unlawful deduction.
• Plumb v Duncan Print Group clarified that employees on long-term sickness cannot be forced to prove they were physically unable to take leave and that carry-over of the core four weeks is capped at 18 months.
• King v Sash Window Workshop established that where a worker is denied the right to take holiday, EU-derived leave may roll forward indefinitely. Although not a sickness case, it reinforces how employers must avoid obstructing employees from taking or requesting annual leave.

These decisions remain central for UK employers managing long-term sickness and assessing carry-over rights.

3. Limits on contractual leave carry-over

Employers can set limits on the carry-over of contractual holiday beyond the 5.6 weeks statutory entitlement. If the contract is silent, the starting position is that the additional 1.6 weeks cannot be carried over automatically because of sickness. However, employers may choose to allow such carry-over through policy wording or consistent practice. A longstanding discretionary practice may become an implied contractual term, so employers must maintain consistency or make changes carefully and lawfully.

Employers should clearly communicate any carry-over limits and ensure they are applied consistently. Failure to do so may lead to allegations of unfairness or disability discrimination where inconsistent treatment disadvantages an employee with a long-term health condition.

4. Treatment of unused leave if an employee returns mid-year

When an employee returns after a long period of sickness, they may have accrued a significant amount of annual leave, including carried-over statutory leave from previous years. Employers are entitled to manage how and when this leave is taken, provided the Working Time Regulations notice rules are followed. However, requiring employees to take large blocks of leave immediately or at specific times can create risk if the employee’s health or disability makes this unreasonable.

A planned, documented approach supports compliance and helps ensure employees benefit from the rest and recovery intended by the legislation. Where an employee is disabled, adjustments may include spreading leave more evenly, allowing a delayed start to leave taking or permitting phased use of carried-over entitlement.

Section C Summary
Employees unable to take statutory leave because of long-term sickness can carry over up to four weeks of EU-derived leave for 18 months after the end of the relevant leave year. The additional 1.6 weeks and any contractual leave depend on the terms of employment and any established practice. Employers must track leave accurately, understand the impact of case law, and consider reasonable adjustments for disabled employees to ensure fair and lawful management of carry-over.

Section D: Holiday Pay on Termination After Long-Term Sickness

When employment ends following a period of long-term sickness, employers must account for any accrued but untaken statutory holiday. This applies whether the employee resigns, is dismissed on capability grounds or leaves through redundancy or agreement. HR professionals must ensure calculations are accurate and compliant, particularly where the employee has not worked for many months, as holiday pay errors frequently lead to unlawful deduction claims. Employers should also understand how the 18-month carry-over rule interacts with termination, as expired carried-over leave does not need to be paid.

1. Unused statutory leave entitlement must be paid

On termination, employees are entitled to payment in lieu of any statutory annual leave they have accrued but not taken. This includes leave carried over from previous holiday years due to sickness, provided it falls within the 18-month carry-over period. Employers cannot exclude this payment on the basis that the employee has been off sick or that they have not taken holiday before leaving. Once the 18-month limit has expired, any unused carried-over EU-derived leave lapses and no payment is required.

2. How to calculate holiday pay when no recent work has been done

Where the employee has not performed work for an extended period, calculating holiday pay requires a representative reference period. For the four weeks of EU-derived leave, holiday pay must reflect the employee’s normal remuneration, which may include regular overtime, commission or allowances. Employers must use the 52-week reference period under the amended Employment Rights Act 1996, excluding any weeks in which the worker received no pay. Where fewer than 52 paid weeks are available, employers must look back up to 104 weeks to identify sufficient paid weeks.

For the additional 1.6 weeks and any contractual leave, employers should follow contractual terms, which may specify a different calculation method. Clear recordkeeping is essential where employees have been on extended nil pay to ensure calculations remain legally compliant.

3. What happens to enhanced (contractual) holiday

Payment for enhanced or discretionary contractual holiday depends entirely on the employment contract or policy. Some employers allow payment in lieu of contractual holiday on termination, while others restrict carry-over or allow unused contractual leave to lapse at the end of each holiday year. Employers must be careful to distinguish between statutory and contractual holiday when calculating final pay, as statutory leave must always be paid for if accrued, regardless of policy wording.

Where contractual terms are ambiguous or historic custom and practice has created implied rights, employers should seek clarity before processing termination payments. Errors in distinguishing between statutory and contractual leave frequently lead to grievances or unlawful deduction claims.

4. Settlements, redundancy and long-term sickness

Where employment ends through redundancy or a settlement agreement, accrued but unused statutory holiday must still be paid unless the employee has taken it during their notice period. Parties may negotiate additional payments for contractual holiday as part of a settlement. Employers should ensure that redundancy calculations, including notice pay and PILON clauses, are aligned with holiday pay obligations to avoid disputes after termination.

Particular care is needed where the employee is disabled. Failure to follow consistent and non-discriminatory holiday treatment during sickness, notice or redundancy may give rise to discrimination claims alongside holiday pay disputes.

Section D Summary
When employment ends after long-term sickness, employers must pay employees for all accrued statutory holiday, including any carried-over EU-derived leave that remains within the 18-month window. Calculations must follow a legally compliant reference period, excluding zero-pay weeks and looking back up to 104 weeks if needed. Contractual leave is governed by policy terms, and employers should ensure all final payments are accurate, properly documented and consistent with equality and Working Time Regulations obligations.

FAQs

Does holiday continue to build up during long-term sick leave?
Yes. Employees continue to accrue statutory annual leave during long-term sickness, even when receiving SSP or no pay. Contractual holiday depends on the wording of the employment contract, policy or any established practice.

Can employers force employees to take holiday during sickness?
Employers can require employees to take holiday by giving the correct statutory notice, but this must be approached cautiously. If the employee is too unwell to benefit from rest, compelling holiday may create Equality Act or Working Time Regulations risks.

Can employees be paid for unused holiday instead of taking it?
Not during employment. Payment in lieu is only allowed on termination. During employment, statutory holiday cannot be replaced with pay except when the employment ends.

Does long-term sick leave reduce the 5.6 weeks statutory entitlement?
No. Statutory holiday entitlement continues to accrue in full, including the core four weeks of EU-derived leave and the additional 1.6 weeks. Sickness absence does not reduce entitlement.

How far back can holiday be carried forward?
Employees can carry over up to four weeks of EU-derived leave for up to 18 months after the end of the leave year if sickness prevented them from taking it. The additional 1.6 weeks may be carried over only if allowed by contract or established practice.

What happens if an employee refuses a holiday request during sickness?
If the employer has given valid statutory notice requiring leave, refusal may breach Working Time Regulations. However, employers should consider the employee’s health, reasonableness and any disability-related adjustments before enforcing compulsory leave.

Conclusion

Holiday rights during long-term sickness absence sit at the intersection of employment law, the Working Time Regulations and established case law. Employers must apply these rules consistently to avoid unlawful deductions, breach of contract claims and discrimination risks. Statutory leave continues to accrue throughout sickness; employees retain the right to request paid annual leave; and employers must handle refusals or compulsory leave in line with statutory notice requirements and Equality Act considerations.

Carry-over rules can create substantial entitlement across multiple leave years, and final holiday pay calculations must follow legally compliant methods, excluding zero-pay weeks and using extended reference periods where necessary. A structured, documented approach helps HR teams maintain compliance, reduce disputes and support employees fairly through long-term sickness.

Clear internal policies, accurate recordkeeping and a willingness to make reasonable adjustments for disabled employees are essential to ensure lawful and fair treatment when managing holiday rights during long-term sickness absence.

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