April marks the start of the new financial year and, for some employers, the start of their new annual leave year. And FY23/24 will be what is known as a fat year. But what does that mean for employers?

Kate Palmer, HR Advice and Consultancy Director at Peninsula, explains.

“Arguably, the most common leave year runs from January-December each year; but employers may also choose to operate a leave year of April-March, September-August, or some other combination. In most cases, there are no issues with how this is managed. However, some anomalies are created for employers who run an April-March holiday year, as it is possible for two Easter weekends to fall within the same leave period. This happens if Easter falls in April of one year but in March of the next.

“Employers who run April to March holiday leave years can end up with two sets of Bank Holidays in the same leave year, resulting in up to 10 Bank Holidays. This is known as the fat year.

“Other April to March leave years could contain no Easters, leaving a minimum of only 6 Bank Holidays. This is known as the lean year. There could be 6, 7, 8, 9 or 10 Bank Holidays in a leave year, which means some employers may be giving ‘too many’ or ‘too few’ days’ holiday per leave year.

“All workers are entitled to 5.6 weeks paid annual leave each year under the Working Time Regulations 1998. Whilst employers must ensure their workers are provided with this statutory minimum entitlement, they have some flexibility with how they wish to set their holiday leave year.

“During the fat year, employers should review the wording of their employees’ contracts to understand their obligations to provide additional leave entitlement. If the contract entitles an employee to all bank holidays, or 20 days’ holiday plus bank holidays, then failure to honour the extra 1-2 bank holidays that arise when two Easters occur in the same leave year could be a breach of contract.

“Alternatively, if the contract says the employee is entitled to 20 days annual leave plus 8 bank holidays, or 28 days annual leave inclusive of 8 bank holidays, there is scope for avoiding the extra 1-2 days, since employers are only entitled to 8 bank holidays in total.

“Regardless of entitlement during a fat year, employees may still face a reduction in statutory holiday entitlement during a lean year. For example, if 1-2 extra days are given during the fat year, this does not automatically mean employers can reduce employees’ entitlement during the lean year. Instead, they will need to ensure that staff still receive their full 5.6 weeks entitlement.

“Some employers may want to require their staff to reduce their entitlement in the fat year and take it in the lean year. In short, employers cannot enforce employees to do so. However, employers can consult with their workforce (or their representatives) to reach an agreement about the allocation of holidays in these situations.

“If employees agree, employers can require leave to be carried over from one year to another. However, if employees do not agree then there is not much that employers can do. In these situations, contracts which entitle employees to all bank holidays (i.e. two Easters), may have to allow up to two additional days in the fat year and still provide the full 28 days in the lean year.

“Employers should check the wording of employment contracts, communicate how this applies to their workforce, then create a plan to manage the situation, ensuring fair processes are followed throughout.”