Is it better to buy extra annual leave or take time off without pay?

Some employers allow you to buy extra holiday that’s taken from your pay and spread across the year. But does this work out better than taking annual leave without pay? Let's look at the financial impact.

You might be thinking ahead to your holidays this year. Most people in the UK who work a five-day week must receive at least 28 days of paid annual leave a year (which includes the eight bank holidays). This is the equivalent to just over five and half weeks of holiday.

It sounds like a lot, but what happens if you want extra time? Let’s say you need another week off for an important event abroad, like a friend’s wedding, or you want to visit family living in another country – but you’re short on annual leave.

Could you take this time without pay or perhaps buy an extra week of annual leave if your employer offers this option? How will each option affect your finances?

Taking holiday without pay

If you’re looking to take a week of annual leave without pay, it would mean you’d bring home less money that month. You’d also pay less income tax and National Insurance, but the overall impact would be a smaller pay check.

Your pension and other benefits (like maternity or sick pay) could also be affected because you’d be taking a financial hit for that month in question. Things would then return to normal the following month.

Another factor to consider about taking annual leave without pay is the effect on your personal finances. Would you be able to absorb the drop in income that month? It’s important to think about the impact on your spending needs before you decide and tweak your budget as needed.

A good starting point is to ask your employer if they are open to a request for taking time off without pay. Then work out how it might affect your salary and benefits as well as anything related to your employment contract.

Buying extra holiday

If your employer offers an Annual Leave Purchase Scheme (sometimes known as ‘salary sacrifice’) you could opt for buying a week’s extra holiday. In this case, you’d agree to get paid less in exchange for the extra time off.

The overall impact on your income (and therefore how much tax you’ll pay) is likely to be the same as when taking holiday without pay. The main difference is that with salary sacrifice this reduction is usually spread out across the year, depending how your company scheme works.

Buying extra annual leave means that, in effect, you reduce your annual salary by the number of days you buy. But because the scheme spreads the cost over 12 months, it won’t feel like such an extreme financial hit as taking a week off with no pay.

If it’s just a week then the impact on your pension contributions and any other benefits probably isn’t going to be very substantial. But if you take off more time the impact is likely to be greater.

These factors all depend on how much time you are buying, which is why it’s important to check with your employer and pension provider before you decide. Start by asking your employer if they offer the option of a holiday buying scheme and the terms and conditions around it.

Other options

In an age of flexible working, your employer may be more open to you working from a different location – even from abroad if you’re able to do your job remotely. Just remember there may be tax implications in both countries. If you’re going to be travelling to another country, reassure your employer that you can work the regular company hours, even with a time difference.

You could approach the conversation by doing some research into your new location’s facilities – like reliable WiFi connections and a dedicated working area.

Taking a sabbatical is another option if you feel like you need a longer break for any reason. It’s worth speaking to your employer about sabbaticals and whether they are open to their employees taking them.

Once you’ve spoken to your employer about what your contract allows in terms of taking holiday without pay or buying extra holiday, you’ll be in a better position to decide based on your needs and the options available.

If you're using that extra time off to travel, remember to take your Chase card with you – we don't charge fees when you use your card abroad and we'll apply the current Mastercard exchange rate to any purchases you make in the local currency.

18+, UK residents.

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Disclaimer: The Hub is intended as a knowledge portal to provide information on a range of topics, including financial products. Articles may reference products and services that Chase UK does not currently offer. This article is for information only and does not constitute financial advice. Tax treatment depends on your individual circumstances and may be subject to change in the future. We do not offer any tax advice.