Carrying Over Annual Leave 2026 | When Holiday Can Be Carried

Carrying over annual leave is one of the most misunderstood and high-risk areas of UK employment law for employers. What appears to be a simple operational issue — unused holiday rolling into the next leave year — now carries significant legal, financial and reputational consequences if handled incorrectly.

Since a series of UK and EU-derived court decisions, the legal position has shifted materially. Annual leave carry over is no longer limited to narrow exceptions such as sickness or maternity leave. In certain circumstances, unused statutory leave can now carry forward indefinitely, creating hidden liabilities that surface years later, often when an employee leaves. A central authority point here is King v Sash Window Workshop Ltd, which underpins the requirement for employers to actively enable workers to take paid leave.

For employers, this is not a question of generosity or flexibility. It is a compliance issue tied directly to wage liability, record-keeping, workforce planning and tribunal exposure. For HR teams, it requires active systems, documented communication and defensible decision-making, not passive policies.

What this article is about: This guide explains when UK employers are legally required to allow employees to carry over annual leave, when carry over is optional, when it can lawfully be refused and what employers must actively do to prevent unlawful accumulation. It is written to support compliance-grade HR decisions, not informal holiday management. It also signposts where linked issues such as annual leave pay and wider employment law risk management overlap with annual leave governance.

Section A: When are employers legally required to allow annual leave to be carried over?

This is the starting point for any lawful approach to carrying over annual leave. Employers must first understand when carry over is mandatory, regardless of internal policy or operational preference.

The statutory framework employers must work within

Under the Working Time Regulations 1998 (WTR), most workers are entitled to 5.6 weeks of paid annual leave per leave year. This entitlement is legally divided into two distinct parts, and employers should treat the split as a compliance control because the carry over rules apply differently across the two components:

Four weeks of leave derived from retained EU law and an additional 1.6 weeks provided under UK domestic law.

The default position under the Regulations is that annual leave should be taken in the leave year in which it accrues. However, that default is now heavily qualified by case law and by specific statutory scenarios that require carry over.

Mandatory carry over: sickness and family-related leave

Employers are legally required to allow carry over of the four weeks’ EU-derived leave where a worker is unable to take their holiday due to certain protected absences. This includes long-term sickness absence and maternity leave, as well as other statutory family leave. In these circumstances, the worker’s inability to take leave is outside their control and preventing carry over would undermine the health and safety purpose of paid annual leave under the wider working time rules.

Where annual leave is carried over due to sickness, employers may apply a limit requiring the carried-over leave to be taken within 18 months from the end of the leave year in which the entitlement accrued. From an HR governance perspective, this needs to be built into absence management processes and leave recording, particularly where long-term absence is being managed operationally and communicatively, for example through documented steps on contacting employees on sick leave and tracking holiday pay during long-term sick leave.

For employers, the key point is that carry over in these cases is not discretionary. Policies that attempt to cap or prohibit carry over following sickness or maternity leave are unlawful and create avoidable dispute risk.

Mandatory carry over where the employer failed to enable leave

The most significant obligation arises not from employee absence, but from employer conduct. Where an employer fails to properly inform the worker of their annual leave entitlement, actively encourage them to take that leave and clearly warn them that the leave will be lost if not taken, the law may treat the worker as having been prevented from exercising their right to paid annual leave.

In these circumstances, the four weeks of EU-derived leave must carry over, even if the worker was working normally and even if the employer had a “use it or lose it” policy in place. Critically, where the employer has failed to meet these enabling steps, there is no effective expiry until the employer remedies the failure by putting compliant processes in place and giving the worker a real opportunity to take the leave, or the employment ends. If the employment ends before remediation, liability typically crystallises as a payment in lieu of untaken leave.

For employers, this is one of the highest-risk outcomes in working time compliance because the exposure is often historic, difficult to forecast and most likely to surface at termination or dispute point.

What this means in practice for employers

From a compliance and risk perspective, the practical consequences are predictable:

• Carry over is no longer limited to exceptional circumstances.
• Employer inaction can itself trigger mandatory carry over of the four weeks’ EU-derived leave.
• Policies alone are insufficient without evidence of implementation.
• Liability often remains hidden until termination, grievance escalation or tribunal proceedings.

This shifts annual leave carry over from an administrative issue to a systems and governance issue. Employers should treat leave management as part of their core HR control environment, with appropriate documentation, internal communication and auditability.

Section Summary: Employers are legally required to allow annual leave to be carried over where a worker could not take leave due to sickness or family-related absence, and where the employer failed to actively enable the taking of leave. In the latter case, carry over can be indefinite until the employer remedies the failure or employment ends, creating significant historic liability. Any employer approach to carrying over annual leave must start with these mandatory legal triggers.

Section B: When can employers allow annual leave to be carried over, but are not required to?

Once the mandatory legal triggers for carrying over annual leave are understood, the next question for employers is where discretion exists. This is the space where policy design, workforce strategy and risk appetite come into play.

Unlike mandatory carry over, discretionary carry over is not imposed by law. However, once offered or implied, it can quickly harden into an enforceable entitlement if not managed carefully.

The additional 1.6 weeks: discretionary carry over by agreement

The additional 1.6 weeks of statutory annual leave provided under UK law sits outside the EU-derived protections that apply to the core four weeks.

As a result:

• Employers are not legally required to allow this 1.6 weeks to be carried over.
• Carry over is permitted only where there is a relevant agreement.

In practice, this agreement is usually found in the employment contract, a staff handbook or a standalone annual leave policy. Where such an agreement exists, employers can lawfully limit carry over to one subsequent leave year, impose deadlines for use and cap the number of days that may be carried forward.

However, if no agreement exists, the default position applies: unused additional leave lapses at the end of the leave year. For employers, the risk is not in refusing discretionary carry over, but in allowing it informally without clear limits, which can undermine future enforcement.

Contractual annual leave above 5.6 weeks

Many employers offer annual leave entitlements that exceed the statutory minimum. This contractual leave is governed entirely by the terms of the contract and any incorporated policies, but should still be structured coherently against the statutory baseline rules on holiday entitlement.

From a legal standpoint, employers have broad freedom to decide whether contractual leave can be carried over. Conditions, caps and expiry rules are generally enforceable if clearly drafted. There is no automatic statutory protection equivalent to the four-week EU entitlement.

However, this flexibility creates practical risk. Where employers routinely allow contractual leave to roll over without reference to written limits, employees may argue that a contractual variation has arisen, that a binding custom and practice exists or that the employer has waived enforcement rights. These arguments are fact-sensitive and difficult to reverse once established.

Strategic considerations for employers allowing carry over

Allowing discretionary carry over is often motivated by sensible commercial considerations, including managing peak workloads, supporting wellbeing during intense trading periods and retaining talent in competitive labour markets. The question for employers is whether flexibility is being granted in a controlled way that remains auditable and predictable.

Employers should weigh these benefits against growing wage liabilities on exit, operational disruption caused by stacked leave, inconsistency between teams or managers and enforcement difficulty once expectations form.

From a risk management perspective, the key issue is not whether carry over is allowed, but how tightly it is controlled and documented. That is particularly important for part-time and irregular-hours workforces, where errors in calculation, expectation-setting and management of leave balances can quickly escalate, including in relation to holiday entitlement for irregular hours.

Employer decision-making: what must be done if carry over is allowed

Where employers choose to permit carry over of either the additional 1.6 weeks or contractual leave, they should ensure that the entitlement is clearly defined in writing, limits and deadlines are explicit, approval processes are consistent and managers are trained to apply the policy uniformly. Exceptions should be documented and justified, particularly where the employer intends to preserve the ability to refuse carry over in the future.

Failure to do so risks discretionary flexibility being reinterpreted as a permanent right.

Section Summary: Employers are not legally required to allow carry over of the additional 1.6 weeks of statutory leave or any contractual leave above the statutory minimum. However, once carry over is permitted, particularly on an informal or inconsistent basis, it can create enforceable expectations and long-term liability. Discretion must be exercised through clear policy design and disciplined implementation.

Section C: When can employers lawfully refuse annual leave carry over?

For many employers, this is the most commercially sensitive aspect of managing annual leave. While the law increasingly protects employees’ ability to carry over leave, employers do retain the right to refuse carry over in defined circumstances. The risk lies not in refusal itself, but in refusing without being able to evidence compliance.

A refusal that is technically permitted but poorly evidenced can still expose an employer to claims years later, particularly where the issue surfaces on termination or during a wider dispute.

The limits of “use it or lose it”

Historically, many employers relied on a simple “use it or lose it” rule. On its own, that approach is no longer sufficient in relation to the four weeks of EU-derived statutory leave.

Employers can lawfully refuse carry over of this leave only where they can demonstrate that the worker:

• was aware of their annual leave entitlement
• was given a genuine opportunity to take the leave
• was actively encouraged to do so
• was clearly warned that untaken leave would be lost at the end of the leave year

These requirements are particularly relevant where employers seek to rely on expiry of the four weeks’ EU-derived leave. If any one of these elements is missing, the employer risks being treated as having prevented the worker from taking leave, triggering mandatory carry over.

This places the evidential burden firmly on the employer.

What counts as a “real opportunity” to take annual leave?

A real opportunity to take leave is not theoretical. From a compliance perspective, it requires more than simply making leave available in principle or pointing to a policy document.

Factors that commonly undermine an employer’s position include persistent understaffing, workload expectations that discourage time off, managerial pressure to defer leave and repeated refusal of leave requests without offering realistic alternatives.

Where operational demands make it effectively impossible for workers to take leave, employers may be treated as having denied the right, even if no formal refusal occurred. This is particularly relevant in sectors with seasonal peaks, client-driven deadlines or chronic resourcing pressures.

Employers should ensure that leave request processes are clear, workable and properly recorded, including the handling of refusals and alternative dates. Robust processes around how employees request annual leave and how decisions are documented are central to defending refusal decisions.

Refusing carry over of the additional 1.6 weeks

The legal position is more straightforward for the additional 1.6 weeks of statutory leave provided under UK law.

Employers can lawfully refuse carry over of this element where there is no contractual or policy-based agreement allowing it and where the employee was able to take the leave during the leave year. Unlike the core four weeks, there is no legal requirement to actively encourage or warn employees in order to rely on expiry, although doing so may still be advisable from a practical risk management perspective.

Evidence and process: the employer’s risk exposure

From a risk management standpoint, refusal decisions should never rely solely on policy wording. Employers should be able to evidence how and when entitlements were communicated, reminders issued during the leave year, warnings given about loss of leave and records showing that leave requests were feasible.

In the absence of this evidence, refusal becomes difficult to defend, particularly where disputes arise long after the relevant leave year. Employers should treat annual leave records as part of their wider employer record keeping obligations under working time law.

Section Summary: Employers can lawfully refuse annual leave carry over, but only where they can prove that workers were informed, encouraged and warned about taking their leave, and that a real opportunity to take leave existed. The traditional “use it or lose it” approach now operates only within these limits. Failure to meet them can result in leave carrying forward indefinitely, with significant financial consequences.

Section D: How did COVID-19 change annual leave carry over rules, and why do they still matter?

Although the immediate disruption of the COVID-19 pandemic has passed, the legal changes it triggered continue to affect annual leave carry over in many organisations. For employers, this remains a legacy risk area that is frequently underestimated, particularly where workforces remained operational throughout the pandemic period.

Many employers correctly focused on business continuity at the time, but did not always document how and why annual leave could not be taken. That gap now creates downstream compliance and financial exposure.

The coronavirus amendment to the Working Time Regulations

In response to widespread disruption to working patterns, the government introduced the Working Time (Coronavirus) (Amendment) Regulations 2020. These amendments temporarily modified the Working Time Regulations to allow greater flexibility around annual leave.

Under the coronavirus amendments, workers were permitted to carry over up to four weeks of annual leave where it was not reasonably practicable for them to take that leave as a result of the effects of COVID-19.

The key features of the regime were that carry over applied only to the four weeks of EU-derived leave, the entitlement could be carried forward into the following two leave years and the assessment focused on operational practicability rather than individual choice.

What “not reasonably practicable” means for employers

The “not reasonably practicable” threshold was intentionally broad and fact-sensitive. It was designed to reflect the operational realities many employers faced during the pandemic, rather than to create a discretionary right for employees to defer leave.

Examples of circumstances where leave was not reasonably practicable included extreme workforce shortages, sustained delivery of critical services, employees being required to cover for absent colleagues and business continuity demands linked directly to pandemic response.

Importantly, the test looked at the employer’s operational position, not whether the employee simply preferred not to take leave. Employers that restricted leave for legitimate COVID-related reasons often fell squarely within the scope of the amendment, even if this was not explicitly documented at the time.

Does COVID carry over still apply in 2026?

The COVID carry over provisions were always intended to be time-limited, but their effects have not disappeared entirely.

Where leave was validly carried over under the coronavirus regulations, employees remain entitled to take that leave within the permitted two-year window, or to be paid in lieu if employment ends before it is taken. Failure to track or manage this leave does not extinguish the entitlement.

In practice, some organisations still hold residual pandemic-related leave balances, particularly in sectors such as healthcare, logistics and professional services. Employers that have not audited historic leave data may be unaware that these liabilities still exist, including where linked issues around COVID-19 holiday entitlement were not fully addressed at the time.

COVID carry over as a hidden exit liability

One of the most significant risks associated with COVID-related carry over arises on termination of employment.

If carried-over leave remains unused when an employee leaves, it must be paid in lieu. This can materially inflate final salary payments and often emerges late in the exit process, sometimes after settlement terms have been discussed or payroll has been processed.

From a commercial perspective, unmanaged COVID carry over can result in budgeting inaccuracies, disputes at exit and due diligence concerns in corporate transactions where historic liabilities are scrutinised.

Section Summary: COVID-19 temporarily changed annual leave carry over rules by allowing up to four weeks of leave to be carried forward where taking it was not reasonably practicable. Although the regime was time-limited, its effects continue to surface years later. Employers that fail to identify and manage residual COVID carry over leave risk unexpected wage liabilities and compliance failures.

Section E: What must employers actively do to prevent unlawful annual leave carry over?

One of the most significant shifts in UK employment law is that annual leave compliance is no longer passive. Employers cannot rely solely on written policies or assumptions that workers will manage their own leave responsibly. The law now expects active employer involvement.

Failure to meet this standard is one of the most common reasons annual leave carries over unlawfully, often without employers realising that liability is building.

The employer’s duty goes beyond making leave available

It is no longer sufficient for employers to argue that workers “could have taken leave if they wanted to”. To lawfully prevent carry over of the four weeks’ EU-derived leave, employers must be able to demonstrate that they took positive steps to enable and encourage leave to be taken.

This includes informing workers clearly of their annual leave entitlement, explaining how and when leave can be taken, actively encouraging workers to take leave during the leave year and warning workers, in good time, that untaken leave will be lost.

These steps must be taken before the end of the relevant leave year. Retrospective communications issued after leave has expired will not remedy a failure to comply.

Timing, content and evidence all matter

From a compliance perspective, it is not enough that reminders or warnings exist somewhere in an organisation’s documentation. Employers must consider when communications are issued, what they say and whether they can be evidenced.

Effective systems typically involve reminders being issued with sufficient time remaining in the leave year for workers to take leave in practice, clear and unambiguous wording that explains both entitlement and the consequence of non-use and reliable evidence that communications were issued and accessible to the worker.

Employers relying on HR or payroll systems should ensure that automated reminders function correctly, leave balances are accurate and warnings are not suppressed or overridden. Weak systems can undermine an otherwise compliant policy.

Managing operational barriers to taking leave

Even where reminders are issued, employers may still fall short if operational realities prevent leave from being taken.

Common risk indicators include repeated refusal of leave requests due to workload, chronic understaffing, cultural pressure to defer leave and informal expectations that leave will be “caught up later”. In these circumstances, employers may be treated as having prevented the taking of leave, regardless of policy wording.

From a risk management standpoint, HR teams should monitor leave uptake patterns, intervene where workers are consistently unable to take leave and escalate systemic resourcing issues rather than allowing leave to accumulate indefinitely. These steps align closely with wider obligations around working time and rest and employee health and safety.

Record-keeping as a defensive control

Annual leave records now serve a dual purpose. They support operational planning and act as critical evidence in disputes.

Employers should retain clear records of entitlement notifications, reminder communications, leave requests and approvals and any refusals with alternative dates offered. Where disputes arise long after the relevant leave year, this documentation is often decisive.

Annual leave documentation should be treated as part of the organisation’s wider compliance framework, sitting alongside other employer record keeping obligations under working time law.

Section Summary: To prevent unlawful carry over of annual leave, employers must do more than provide entitlement on paper. They must actively inform, encourage and warn workers, and ensure that operational practices genuinely allow leave to be taken. Failure to do so can result in indefinite carry over of leave and significant historic liability.

Section F: What happens if employers get annual leave carry over wrong?

Errors in handling annual leave carry over rarely cause immediate problems. Instead, they tend to accumulate quietly over time and surface at the most expensive moment, typically when an employee leaves, raises a grievance or brings a tribunal claim.

For employers, this is where technical non-compliance translates into direct and often unexpected financial exposure.

Unlawful deduction of wages claims

Untaken statutory annual leave is treated as wages for the purposes of employment law. Where an employer fails to allow lawful carry over, or refuses to pay for accrued leave on termination, the employee may bring a claim for unlawful deduction of wages.

Key risk factors for employers include claims that span multiple leave years, arguments that deductions form a series and disputes arising long after the original failure occurred. Although case law has placed some limits on historic claims, liability can still be substantial where leave has been accruing year after year.

These risks are particularly acute where employers have failed to comply with their active obligations to enable leave, as the entitlement may never have expired in law. Claims for unlawful deduction of wages frequently arise in this context.

Indefinite accrual and termination pay exposure

The most commercially damaging outcome arises where the employer has failed to properly inform, encourage and warn workers about taking annual leave.

In these circumstances, the four weeks’ EU-derived leave can accrue indefinitely. When employment ends, the employer must make a payment in lieu of all untaken entitlement. That payment must be calculated by reference to the worker’s normal remuneration, which may include overtime, commission or other variable elements.

For long-serving employees, this can result in unexpected five-figure liabilities. Employers often only become aware of the scale of the exposure during exit processing or final payroll reconciliation, at which point mitigation options are limited. Issues around holiday entitlement when leaving a job commonly surface at this stage.

Payroll, budgeting and governance consequences

Unmanaged carry over affects more than just legal compliance. It can distort payroll forecasting, undermine accrual reporting and raise internal governance concerns.

Common organisational impacts include inflated final salary payments, delays in exit processes, disputes over settlement terms and scrutiny from internal audit or finance teams. In some cases, unresolved annual leave liabilities complicate negotiations around a settlement agreement or escalate into formal proceedings governed by employment tribunal rules.

Reputational and employee relations risk

Annual leave disputes are often perceived by employees as fairness issues rather than technical legal matters. When leave is lost or refused unlawfully, trust can break down quickly.

This can lead to grievances escalating into claims, disengagement and attrition, reputational damage where disputes become public and scrutiny from trade unions or employee representatives. Employers without clear escalation routes, such as a documented grievance procedure, are particularly exposed.

Section Summary: Getting annual leave carry over wrong exposes employers to unlawful deduction claims, historic wage liability and significant termination costs. These risks typically emerge late and at scale, making them difficult to contain. Effective management of carry over is therefore a core element of workforce risk governance, not a minor administrative issue.

Annual leave carry over FAQs

This section addresses the most common employer and employee questions around carrying over annual leave. Each answer reflects the current UK legal position and highlights the practical implications for employer decision-making.

Can employees carry over annual leave if they forgot to take it?

Not automatically. If an employee simply chose not to take annual leave, the law does not require employers to allow carry over. However, this position is only defensible where the employer can prove that the employee was properly informed of their entitlement, actively encouraged to take leave and clearly warned that unused leave would be lost.

If the employer cannot evidence those steps, the law may treat the employee as having been prevented from taking leave. In that situation, the four weeks of EU-derived statutory leave must carry over, even where the employee remained at work throughout the leave year.

Can employers force employees to take annual leave instead of allowing carry over?

Yes, in principle. Employers can require employees to take annual leave at specific times, provided they give appropriate notice. As a general rule under the Working Time Regulations, the notice must be at least twice the length of the leave the employer is requiring the employee to take.

That said, forced leave should be used carefully. Requiring employees to take leave when workloads remain unmanageable, or where the employee cannot realistically rest, may undermine the employer’s ability to argue that leave was genuinely facilitated.

How much annual leave can be carried over under UK law?

There is no single rule. The amount that can be carried over depends on why the leave was not taken.

• Up to four weeks can be carried over where leave could not be taken due to sickness, maternity or employer failure to enable leave.
• COVID-related carry over allowed up to four weeks to be carried forward for up to two leave years.
• The additional 1.6 weeks can only be carried over if the employer agrees.
• Contractual leave depends entirely on the employment contract and policy terms.

Where employer failure is involved, carry over of the four weeks’ EU-derived leave can be indefinite until remedied or until employment ends.

Is there a deadline for using carried-over annual leave?

Yes, but the deadline depends on the legal basis for the carry over.

Sickness-related carry over is usually subject to an 18-month limit. COVID carry over had a two-year limit. Discretionary carry over deadlines depend on employer policy. Leave that carries over because the employer failed to enable or encourage leave does not expire until the employer remedies the failure or the employment ends.

Applying a single blanket deadline to all carried-over leave is a common compliance mistake.

What happens to carried-over leave if an employee leaves?

Any untaken statutory annual leave, including carried-over leave, must be paid in lieu when employment ends. The payment must reflect the employee’s normal remuneration, which may include overtime or commission where legally required.

Failure to pay correctly can result in unlawful deduction of wages claims and often becomes the focal point of exit disputes.

Can employers refuse to allow annual leave to be carried over?

Yes, but only in defined circumstances. Employers can refuse carry over where the employee had a real opportunity to take leave, the employer actively encouraged leave and the employee was warned that leave would be lost.

Without evidence of these steps, refusal may be unlawful, even if the employer’s policy appears to allow it.

Does part-time or irregular work change annual leave carry over rights?

No. Part-time and irregular-hours workers have the same legal rights to annual leave and carry over, calculated on a pro rata basis. Employers must apply carry over rules consistently across working patterns to avoid discrimination risk.

Can employers reset carry-over balances each year?

Only in limited circumstances. Employers can reset balances where carry over was discretionary and subject to clear contractual limits. They cannot lawfully wipe out leave that carried over because of sickness, maternity or employer failure to enable leave.

FAQs Summary: Whether annual leave can be carried over, refused or reset depends entirely on the reason it was not taken and on employer conduct during the leave year. Employers that apply blanket rules without analysing the underlying legal basis expose themselves to avoidable compliance risk.

Conclusion

Carrying over annual leave is no longer a narrow technical issue confined to sickness absence or exceptional circumstances. Under current UK employment law, it has become a compliance-critical risk area driven as much by employer conduct as by employee availability.

For employers, the central point is this: annual leave does not simply expire because a policy says so. Where employers fail to actively inform, encourage and warn employees about taking leave, statutory entitlements, particularly the four weeks of EU-derived leave, can carry over indefinitely and crystallise as significant wage liabilities on termination.

At the same time, employers retain meaningful control. Carry over of the additional 1.6 weeks and contractual leave can be limited or refused, provided this is done through clear contractual drafting, consistent policy application and defensible process.

From an HR and governance perspective, annual leave carry over should be treated as a workforce risk issue, not an administrative one, a systems and evidence issue, not a policy-only issue, and a potential exit liability that must be monitored, not discovered by accident.

Employers that adopt proactive leave management, supported by robust records and clear communication, are far better placed to balance legal compliance, operational flexibility and employee wellbeing.

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