Should employees get length of service holiday increases?

As workplace cultures evolve towards fairness, flexibility, and inclusivity, many employers are questioning whether traditional length-of-service holiday increases still have a place in modern employment practices.

While rewarding loyalty remains important, recent UK employment law changes and shifting employee expectations are prompting a fundamental rethink of how businesses structure leave entitlements. 

With significant updates made to UK holiday pay regulations in 2024, it's important for employers to understand both the legal landscape and the cultural implications of service-based benefits.

Understanding length-of-service holiday increases 

Length-of-service holiday increases are additional days of annual leave granted to employees who have worked at a company for a specified period, typically starting after two, five, or ten years of service. Historically, this has been a popular retention tool, seen as a tangible way to recognise loyalty and long-term commitment.  

Current legal framework

All UK workers remain legally entitled to 5.6 weeks paid annual leave (28 days for full time staff, calculated pro rata for part-time workers). This baseline cannot be reduced and forms the foundation of all holiday entitlements. 

Key changes from April 2024 

The employment law landscape has seen significant reforms that affect how holiday entitlement is calculated and paid:

New rules for irregular and part-year workers 

• Holiday entitlement is now calculated using a 12.07% accrual method based on actual hours worked in each pay period.
• Employers can now use rolled-up holiday pay for irregular hours and part-year workers (this is optional, not mandatory).
• These changes apply to leave years beginning on or after 1 April 2024. 

Enhanced holiday pay requirements 

• Holiday pay for the first four weeks of annual leave must now include regular overtime, commission, and other consistent payments.
• This ensures workers aren’t financially disadvantaged when taking statutory leave.
• The remaining 1.6 weeks can be paid at basic rate.

Expanded carry-over rights

• Employees can carry forward unused leave in more circumstances, particularly when they’ve been unable to take leave due to family or sick leave.
• These enhanced rights apply across the full 5.6 weeks of statutory entitlement.

Anti-discrimination considerations 

Length-of-service benefits must be carefully structured to avoid discrimination risks under the Equality Act 2010. While service-based rewards aren't automatically prohibited, they could potentially disadvantage: 

• Younger employees
• New joiners (who may have left previous roles for legitimate reasons)
• Women returning from maternity leave
• Workers with career breaks

Employers must ensure such policies are objectively justifiable and don't create indirect discrimination.  

The evolving workplace culture

Shifting priorities 

Post-pandemic workplace culture has fundamentally shifted towards: 

• Universal fairness over tenure-based privileges
• Wellbeing support for all employees regardless of service length
• Flexible working arrangements that benefit the entire workforce
• Performance and contribution-based rather than time-based recognition

Generational expectations 

Younger workers increasingly prioritise: 

• Immediate recognition for their contributions
• Flexible working arrangements from day one
• Career development opportunities
• Mental health and wellbeing support
• Work-life balance that doesn’t require years of “earning” through service

The case for length-of-service holiday increases 

Despite cultural shifts, there remain compelling arguments for service-based benefits: 

Proven retention value 

• Tangible incentive for employees to build long-term careers with the organisation.
• Creates a clear progression of benefits that employees can anticipate.
• Demonstrates genuine appreciation for sustained commitment.

Recognising increased contribution 

• Long-serving employees often take on additional responsibilities, mentoring roles, or institutional knowledge.
• Extra leave can be seen as fair compensation for their expanded contribution to the business.

Supporting employee wellbeing 

• Additional rest can help maintain performance and engagement levels.

The arguments against length-of-service holiday increases

Fairness and equity concerns 

• May create a two-tier system that newer employees perceive as unfair
• Could disadvantage employees who change jobs for career development or personal reasons
• May not align with diversity and inclusion objectives

Operational complexity 

• Adds administrative burden, particularly under new holiday pay calculation requirements
• Can create confusion about entitlements across different employee groups
• May complicate payroll systems and HR processes

Cultural misalignment

• May signal that the organisation values tenure over performance or innovation
• Could discourage fresh perspectives and new ideas
• May not resonate with employees who prioritise other benefits

Best practice recommendations

Conduct a comprehensive policy review

Ensure your holiday policies align with:

• Latest legal requirements for all worker types
• Your organisation’s diversity and inclusion objectives
• Current employee expectations and preferences

Consider hybrid approaches

Rather than abandoning service recognition entirely, consider: 

• Milestone recognition with one-off additional leave (e.g., extra days for 5th, 10th anniversaries)
• Choice-based benefits where employees can select from various options
• Universal wellbeing days available to all employees from day one

Implement alternative recognition strategies

Focus on benefits that provide immediate value: 

• Enhanced flexible working arrangements
• Professional development budgets
• Wellbeing support and mental health resources
• Performance-based bonuses or recognition programmes

Ensure transparent communication

If maintaining service-based increases: 

• Clearly explain the rationale and how it aligns with company values
• Set reasonable, achievable thresholds
• Ensure consistent application across all employee groups
• Regular review and adjustment based on feedback

Gather employee feedback 

Use surveys, focus groups, or one-to-one discussions to understand: 

• Which benefits your workforce actually values
• Whether service-based rewards create feelings of unfairness
• What alternative recognition methods would be most appreciated

Legal compliance checklist

• Ensure policies don’t indirectly discriminate against protected groups
• Apply new holiday pay calculation methods correctly for irregular workers
• Maintain clear documentation of policy rationale
• Regular legal review to ensure ongoing compliance

Conclusion

Length-of-service holiday increases aren't inherently outdated, but they require careful consideration in today's workplace environment. The key is balancing traditional recognition of loyalty with modern expectations of fairness and inclusivity. 

The most successful approach will likely be one that:

• Remains legally compliant with evolving regulations
• Reflects your organisation’s values and culture
• Responds to actual employee preferences rather than assumptions
• Provides meaningful recognition while maintaining equity

Rather than viewing this as an either/or decision, consider how service recognition can be part of a broader, more inclusive benefits strategy that values both loyalty and contribution while supporting the wellbeing of your entire workforce. 

Moving forwards, the organisations that thrive will be those that can evolve their recognition strategies to meet changing expectations while maintaining their commitment to rewarding genuine contribution and dedication. 

Disclaimer:  This guide provides general information about UK employment law as of 2025. It should not be considered as legal advice. For specific situations, consult with qualified employment law professionals. 
 

• Read more from the myhrtoolkit blog
• Unlimited holiday: is it right for your business?
• Holiday carry over: a guide for employers