Many UK businesses close over Christmas or during quieter periods for them – so what does the law say about compulsory leave and pay?
Here’s what you need to know to navigate this time of year in the best possible way.
Can You Force Employees to Take Holiday?
Yes, but only under certain conditions[1]. Employers can require staff to take annual leave during a shutdown if the employment contract or company policy allows it. If no agreement exists, you must give notice of at least twice the length of the leave required. For example, if you want employees to take 5 days off, you must give 10 days’ notice. This rule comes from the Working Time Regulations 1998.
Key points to consider:
- Contractual basis: Check employment contracts and company policies. If they state that the business may close and employees must take holiday, you can enforce this without additional agreement.
- Notice requirements: If no contractual clause exists, you must give written notice as stated above.
- Communication: Notices should be clear, in writing, and ideally sent well in advance to avoid disputes. Include dates, expectations, and any options for employees with insufficient leave.
- Unpaid leave: You cannot force unpaid leave unless the employee agrees in writing. If they lack enough holiday entitlement, you can offer:
- Leave in advance (deducted from next year’s allowance).
- Unpaid leave, but only by mutual agreement. It is better to track outstanding holiday entitlement and ensure employees have sufficient holiday left for the shutdown period
- Part-time and irregular workers: Apply the same principles, but calculate entitlement based on their pro-rata holiday allowance.
Why does this matter? Failure to follow these rules can lead to breach of contract claims or unlawful deduction of wages. Clear planning and communication protect both the business and employees.
It is also worth bearing in mind employees’ responses to being ‘forced’ to take leave, and how you manage this and any negative reaction – it is usually in the communication and providing sufficient time to adapt!
Pay During Business Closure
Employees on annual leave during a shutdown must receive normal holiday pay, including regular allowances like guaranteed overtime, commission, and certain bonuses—reflecting what they would normally earn. For variable pay, use the previous 52 weeks as a reference. These rules apply to the first 4 weeks of the statutory minimum 5.6 weeks leave but check your policy for any extra contractual entitlement. Incorrect payments may lead to tribunal claims and reputational risk.
Contractors differ—they have no statutory holiday rights unless stated in their contract (but questions should be raised if in the contract). For genuine self-employed contractors, a shutdown usually means no work and no pay. Misclassification can trigger IR35 challenges. Agency workers are entitled to holiday pay in the same way as employees.
Notice Requirements for Shutdown
Employers must give reasonable written notice before a shutdown. For most businesses, this means at least 28 days’ notice if the closure is planned and employees are required to take leave. However, you will need to consider contractual and custom and practice before any knee jerk planning!
If new staff join after notice is issued, inform them as soon as possible. Clear communication avoids disputes and ensures compliance.
Contractors vs Employees During Closure
Employees have statutory rights to paid annual leave. Contractors do not[2]—unless their contract includes holiday provisions. For contractors, a shutdown may mean no work and no pay. Employers should check agreements and communicate early to avoid misunderstandings.
IR35 Risk and Compliance for Employers Using Contractors
Holiday closures can create IR35 compliance risks for businesses using contractors. IR35 determines if a contractor should be taxed as an employee; if HMRC finds they are a “disguised employee,” companies may face backdated tax, NI, interest, and penalties.
Key risks during shutdowns:
- Directing contractors when to take time off or limiting outside work can indicate employment-style control.
- Offering holiday pay or enforcing unpaid leave blurs contractor status.
- From April 2025, higher small-company thresholds mean more firms will be exempt, but medium and large businesses remain responsible for IR35 compliance.
Final Thoughts
A shutdown period can be smooth if you plan ahead. Review contracts, give proper notice, and ensure holiday pay is correct. Communicate clearly with employees and contractors to avoid legal risks.
Need help updating your holiday policies or contracts? Contact us today at View HR for expert and tailored HR support.
[1] Asking for and taking holiday – Holiday entitlement – Acas
[2] Holiday Pay Rights and Employer Obligations: A Guide for UK Businesses | Sprintlaw UK
Many UK businesses close over Christmas or during quieter periods for them – so what does the law say
