Payment in lieu of taking annual leave

Can I pay employees their annual leave rather than them taking time off?

This is a question I have often been asked by clients when employees may not have been able to use up all their annual leave or when employees might themselves prefer to get paid instead. And the answer is always the same – No !

Under the Organisation of Working Time Act, it is illegal to pay for annual leave not taken unless an employee is leaving their employment.

The purpose of annual leave is to ensure that employees have time away from work for rest and relaxation and they must be given an opportunity to avail of their minimum statutory leave entitlement.

This was something the FAI clearly chose to ignore when paying their CEO Jonathan Hill the sum of €11,500 for untaken annual leave entitlement in 2022 , which happened on foot of an earlier agreement to pay a junior member of staff for their unused leave.

An employer could agree to pay an employee for unused leave above the minimum statutory entitlement of 20 days per annum, but this in itself would not be good practice either and would be counter intuitive to the intended benefit of providing additional leave above statutory entitlements.

To avoid potential issues arising with annual leave accruing and not being used, employers should always proactively manage the taking of annual leave with regular reminders to employees to ensure they book leave.

In addition, it should be noted that the Organisation of Working Time Act 1997 does provide that employers may schedule annual leave with 30 days notice and consultation with employees, and also with an employee’s agreement, annual leave may be taken within six months of the next leave year.