Shortfall on bank holidays – employers are at risk of underpaying

Given that time off – holiday leave – is one of the most valued benefits an employer can give staff, it is no wonder that when mistakes happen, employees are quick to seek to recover what they believe they are owed.

But mistakes do happen, and this year, it appears that employers could have unintentionally underpaid holiday entitlement due to an anomaly in the bank holiday calendar.

In essence, if the holiday year runs from April to March, some employees might not have received their full statutory leave entitlement – potentially putting their employer at risk of legal claims.

What was different about holiday leave this year?

Most years, England and Wales have eight bank holidays. However, due to Easter falling later in 2025, only seven holidays occurred between 1 April 2024 and 31 March 2025. This calendar event could affect employers that provide statutory minimum holiday entitlement – particularly if their holiday year follows the April to March cycle.

Law and Working Time Regulations

Under the Working Time Regulations 1998, employees are entitled to 28 days of annual leave, including bank holidays.

This entitlement may be included in employment contracts as part of the overall leave allowance.

The reduction in the number of bank holidays this year could lead to a shortfall in the total leave entitlement if employees’ contracts specify a set number of days off plus bank holidays.

What to check for

To avoid issues, employers need to have checked how their contracts allocated holiday entitlement:

• If a contract states, “28 days, including bank holidays”, the reduced number of bank holidays has no effect. Employees still receive their full entitlement.
• If a contract states, “20 days plus all bank holidays”, an issue will arise. With only seven bank holidays, affected employees would have received 27 days, which is below the statutory minimum.

What employers should do

Where an employer has identified that its employees are affected, they have two main options to address the shortfall. The low-risk approach was to have granted affected employees an extra day’s leave before 31 March 2025. This would have ensured compliance with the Working Time Regulations 1998 and avoided any potential claims for underpayment.

Alternatively, they may have chosen a higher-risk approach – that is, to have done nothing. However, this could lead to claims for unlawful deduction from wages due to non-compliance with statutory holiday entitlement.

In an ideal world, employers should be regularly reviewing their contracts – this is good practice, regardless. The contracts should be clear on how holiday entitlement is allocated – particularly in relation to bank holidays. If a shortfall occurred, they should have decided on a course of action. Where employees’ contracts are affected, they need to have decided how best to address the shortfall – including making good the loss.

Whatever the outcome of the deliberations, the process, changes or clarifications need to be communicated to employees as soon as possible to ensure transparency.

Summary

Failing to provide the full statutory holiday entitlement can damage employee relations, create reputational risks, and potentially result in employment tribunal claims associated with underpaying leave.

Employers that generally take proactive steps will help prevent these risks and ensure employees receive their correct holiday entitlement.

Panel 1: Holiday and sick leave

Imagine an employee gets sick on day two of a five-day holiday. Instead of enjoying their time off, they are bedridden. When they return to work, they ask to reclassify those days as sick leave, recouping their annual leave for another time.

Many organisations do not have clear policies addressing these situations, yet it is a scenario that crops up often. So, how should employers respond when sickness and annual leave coincide?  What happens if an employee is sick while on holiday?

ACAS, a government organisation that provides guidance on employment law and best practice, offers some clarity on this situation.

According to its advice, if an employee falls ill while on annual leave, they must notify their employer if they want to reclassify any of that time as sick leave.

The employee then has two options: they can either claim statutory sick pay for the days they were unwell (if they qualify for it), or save their holiday and take it at a later date. An employee who is incapacitated both before and during annual leave can have their time off re-categorised as sick leave.

Things to consider

If the employee did not notify their employer that they were sick, evidence may be reasonably required of the illness; fairness and practicality should guide whether their leave is reclassified.

If the employer offers enhanced sick pay, it is likely a contractual right. Employers wanting to remove this must consult with staff and would be advised to take legal advice before acting.

If the employee was not “sick” – say, they broke their ankle before a skiing trip – they might not be able to travel, but could still work; for example, from home. Employers should assess each situation individually and ensure their decisions are reasonable, align with company policies, and are consistent with how similar cases have been handled in the past.

If employees are unable to take at least four weeks of their statutory leave due to sickness, they must be allowed to carry it over into the next one-and-a-half leave years.

Ultimately, annual leave is meant to give employees a chance to rest and recharge. If illness prevents them from doing so, it is reasonable to allow them to take their holiday later.

That said, clear policies and applying them consistently is key to maintaining fairness, preventing misuse and avoiding operational challenges.

• Appeared in Vet Times (2025), Volume 55, Issue 25, Pages 21-22