Benefits of providing an annual leave purchase scheme to employees

Also known as a holiday buyback scheme, an annual leave purchase scheme allows employees to buy additional holiday days through salary sacrifice. They can either do this at the start of the year and have the cost split into equal monthly payments, or they can purchase more holiday once they’ve used up their core allowance.

Workers tend to be charged their daily gross pay rate for every extra holiday day taken. It is up to the employer how much additional annual leave they want to provide. However, most companies offer up to 5.

Adding an annual leave purchase scheme to your employee benefits package can present a range of important benefits to both staff and businesses. We take a look at these in this article.

Benefits of annual leave purchase schemes for employers

Attract new recruits

Employees love maximising their annual leave. According to an Employee Benefits Survey by the HR platform, SHRM, leave benefits are ranked the third most important workplace benefit. Since the pandemic in 2020, the number of people who value this perk highly has remained around 80% – up from 65% pre-pandemic.

To offer this attractive perk, you could consider introducing an annual leave purchase scheme. Not only will this make your company a more desirable place to work, but you’ll also access a greater talent pool of skilled people to drive your business forward.

Retain staff

An annual leave purchase scheme could also improve your employee retention rate. In the UK, full-time employees are legally entitled to 28 days’ paid holiday, and that’s what most companies offer.

However, being one of the few that offers more will set you apart from your competitors and encourage existing staff to remain loyal.

Support your team’s wellbeing

As an employer, you have a duty to look after your workers’ health and wellbeing. Especially if you operate in a high-pressure industry, an annual leave purchase scheme can help considerably with this.

Over the past year, the number of annual leave days taken has dropped across all sectors. The biggest one was agriculture (-11.85%), followed by construction (-10.98%), and finance and insurance (-9.11%). As a result, these demanding industries are at high risk of employee burnout, which notoriously increases stress and leads to a productivity dip.

Consequently, a study by LemonEdge found that a third of financial professionals planned to leave their jobs due to high pressure, and 27% agreed that extra time off work would help alleviate this issue.

Regardless of the nature of your business, it’s essential to promote a healthy work-life balance and care for your team’s physical and mental wellbeing. You can do this by encouraging them to take regular time off with an annual leave purchase scheme.

Boost productivity

Regular breaks are vital for good performance. An annual leave purchase scheme can help boost productivity in the workplace and keep those levels consistently high. Without the option to take additional leave, some people may feel restricted and want to save their allowance for special occasions, leading to prolonged periods of non-stop work. Therefore, they could be at risk of burnout and your business could be at risk of increased absenteeism.

By offering an annual leave purchase scheme, you can help improve your team’s productivity by giving them greater flexibility in the way they use their holiday entitlement.

Save money

Finally, a key benefit for employers is that you can save money with an annual leave purchase scheme. As mentioned, the scheme works through salary sacrifice. This means that a portion of an employee’s gross pay (pre-tax) is deducted.

Not only will your company make a direct saving on this, but for every employee under the scheme, you’ll pay less Income Tax and National Insurance contributions.

In this way, an annual leave purchase scheme means that people can enjoy a useful workplace benefit whilst saving your company money – it’s a win-win.

Benefits of annual leave purchase schemes for employees

As mentioned, annual leave purchase schemes are a win-win for both employers and workers. Let’s take a look at some of the benefits for your staff.

Feel valued

Having access to annual leave can make employees feel valued by the company. It indicates that the business truly considers the wellbeing of its workers and actively tries to improve it.

A standard benefits package that comprises a pension scheme and a competitive salary is no longer enough to entice new joiners and existing staff to keep their jobs. By offering an annual leave purchase scheme, your current team will feel appreciated and supported.

Improve wellbeing

In 2022/23, an estimated 31.5 million working days were lost due to work-related ill health, with 17.1 million of them lost due to stress, depression or anxiety. While taking a holiday is not the answer to complex problems, the option to take regular breaks from work can be an important way of slowing or preventing the buildup of stress in the workplace.

An annual leave purchase scheme can provide valuable additional flex in your employees’ lives, and improve your staff’s wellbeing, by allowing them to take off work when needed and prioritise their health, without worrying about running out of holiday days for other needs.

Spread the cost

Even though it’s a pre-tax payment, the cost of buying extra holiday can still be substantial for some employees – especially if it were to be taken in one lump sum.

There are various ways in which salary sacrifice for an annual leave purchase scheme can work.  Often, staff members need to commit to the number of extra days they want to take at the start of the year and the cost of that is then divided into 12 equal monthly instalments.

However, this method can prove tricky for the company later on, if an employee pays for the maximum additional allowance but doesn’t end up using it.

Another option is for people to request extra holiday on an ad-hoc basis once their main entitlement has run out. The cost is then deducted from the employee’s next payslip. In either case, staff have the significant benefit of making these payments easily manageable.

 

Final thoughts

So, there you have the key advantages of annual leave purchase schemes for both employers and employees. Businesses looking for ways to stand out from the crowd, retain staff, and save money could benefit from implementing the scheme. Meanwhile, employees will feel valued, be able to enhance their wellbeing, and spread the cost of the additional holiday days.

We hope you found this article helpful.