PURCHASE OF ANNUAL LEAVE (POAL) update

No. 49/26

13th February 2026

Dear Colleague,

PURCHASE OF ANNUAL LEAVE (POAL)

The CWU are aware of the level of confusion and frustration felt by our members and reps

alike regarding the loss of access to purchase additional annual leave via salary sacrifice.

This LTB sets out to explain the challenges which exist but more importantly the work the

CWU is undertaking with Royal Mail to try and resolve the situation.

Within the Way Forward agreement of 2000, the CWU and Royal Mail agreed that

individuals should have the opportunity to be able purchase annual leave of up to six weeks.

The CWU also secured the added benefit that members could pay for the additional annual

leave using salary sacrifice and therefore not pay national insurance or tax costs. This had

worked well and with no issues regarding the national minimum wage.

However, since 2022 the national minimum wage has increased by 28.5%, from £9.50 to

£12.21 per hour and will go up by a further 4.1% in April this year to £12.71. This rise in the

minimum wage has led to lots of companies being fined for breaching the minimum wage

law as a result of use of salary sacrifice arrangements. This is because the HMRC (who

audit companies to see if they are breaching the minimum wage law) only count gross hours

pay following deductions by way of salary sacrifice, such as pension contributions, purchase

of annual leave or any other My Bundle purchases.

Colleagues will recall that back in March 2025 Royal Mail stepped in and took over all

individuals’ payments for POAL and My Bundle. They did this because they had a genuine

fear that the HMRC could find them liable for breaching the minimum wage law due to the

continued use of salary sacrifice. This would have resulted in a significant fine and damage

to their reputation, at a time when they were calling out other courier companies for using

the self-bogus employment model to undercut Royal Mail in the parcels market. At that point

Royal Mail had a 7% buffer in operation to determine whether individuals would qualify for

salary sacrifice. This buffer is now set at 20% – which I will address later in this

communication.

Royal Mail will continue to pay for the cost of both POAL and My Bundle until April and

individuals will not have to pay back any monies for the financial year of 2025/2026. This

decision was not taken lightly for a couple of reasons; the total cost which has been more

than £13 million and the fact that they’re not paying this amount of money to all staff, only

those who had voluntarily opted to purchase either annual leave or My Bundle items.What has the CWU agreed with the business?

First and foremost our priority was to stop Royal Mail from removing the ability for those

individuals with less than 20 years’ service to purchase additional annual leave. This would

have been the easiest way for the company to mitigate this risk and ensure compliance, but

we have worked with the company to ensure this was not the route they have gone down.

Last year over 63,051 employees were written to allowing them to purchase additional leave,

with 21,255 individuals choosing to do so. It was therefore essential for us that this remained

an option for all individuals, including those with less than 20 years of service.

We have also ensured that salary sacrifice is available for individuals to use subject to the

qualifying criteria. Even with the 20% buffer, 3391 individuals will still be able to continue to

purchase annual leave via salary sacrifice.

The CWU have also agreed that all individuals who want to purchase annual leave but do

not qualify for salary sacrifice can still purchase additional annual leave at the same cost as

POAL. The new system is called Additional Leave Unpaid (ALU).

We are in talks with the company to give individuals the opportunity to spread this payment

for leave over the course of the year via net pay, in the same way as union deductions and

other voluntary payments are paid. There are some legalities with this proposal, but we

believe this should be a way to help members spread the cost of the purchase of additional

leave. If we achieve this option, then someone on the lowest 0.6% purchase of annual leave

will pay less than £1 more per week for the purchase of additional leave and even those

who are at the top and paying 3% to purchase annual leave will only pay £3 extra per week.

We have also ensured that there is a mechanism for new entrants to continue to purchase

additional annual leave, this was a real problem due to their lower hourly rate. This will kick

in from the beginning of the new leave period. Last year over 2000 new entrants purchased

additional leave.

There was one issue which was somewhat of a grey area and that was around whether the

HMRC would count the functional supplements toward the minimum wage calculation,

despite it being a permanent addition to basic pay and that it goes up by the same

percentage as a basic pay rise. Having sought advice from our legal advisors and Royal

Mail’s, it is thought that the safest method is to run the affordability check solely on base

pay.

The CWU are doing two things in this area, the first is we have discussed the possibility of

consolidating part of all supplements into basic pensionable pay as part of this year’s pay

rise. This is in line with the CWU conference policy of consolidating the minimum supplement

that everyone achieves (which is £11.88) into basic pensionable pay. If this was to be

achieved, then this would increase all the old contracts by an additional 32p per hour and

would allow a significant number of individuals to be able to use salary sacrifice. This would

require Royal Mail to fund the additional 13.6% in pension costs if this was to happen.In addition, we are using our political influence and seeking that the ministers involved

advise the HMRC to accept that the permanent functional supplements count towards the

minimum wage calculation.

We have had several discussions with Royal Mail concerning the increase they have made

to the buffer they have used over the years. The buffer was always 7% (due to pension

contributions) and they have moved it to 20% which has meant a significant number of

individuals have not qualified for salary sacrifice.

Royal Mail argues the increase in the buffer is needed to mitigate the various challenges

with the minimum wage law. These include that the current PSP system is old and does not

cater for a blanket case by case management if an individual is potentially in breach of the

minimum wage law. This means that they cannot monitor whether in addition to an individual

purchasing annual leave, they may also be purchasing several My Bundle items which would

bring them below the minimum wage calculation.

Royal Mail specialist lawyers who advise other companies about being within the law have

advised them of the following:

• That they do not believe Royal Mail will be classed as salaried under the different

categories which are listed by the HMRC.

• That the national minimum wage audit reference period is the same as a worker’s

pay frequency i.e. monthly or weekly.

• That minimum wage compliance is calculated based on the average earnings over

the reference period divided by the hours worked.

The CWU still believe that the 20% buffer is too high and want this lowered. The 20% buffer

means that from April an individual must be earning 20% above the £12.71 minimum wage.

This means after POAL, 6% pension, 1% booster that their gross pay is £15.25 per hour

and even if it was reduced to 10% it would need to be £13.98 per hour. Our current national

rate without salary sacrifice is £14.21 per hour with a wage rise due in April.

It is important that the union criticises and calls out Royal Mail when they are in the wrong

as we have done over their USO model (ODM) and their failure to honour the commitment

to equalise new entrants’ pay, terms and conditions.

However, it is also correct to say in this area we have had productive and open discussions

with Royal Mail to try and navigate through these issues in a way which is acceptable and

continues to allow all members who want to purchase annual leave up to 6 weeks that

opportunity.

The CWU lawyers and Royal Mail Lawyers have met to go through the challenges with the

minimum wage law and how the HMRC are potentially interpreting it. Royal Mail’s position

is that they will not risk their reputation from any audit and are following their lawyer’s advice.

The important message is that all individuals who want to purchase annual leave should

continue to do so, either by way of POAL (Purchase of Annual Leave) or via ALU (Additional

Unpaid Leave). The cost of purchasing leave remains the same.The CWU remains in discussions with Royal Mail over whether we can get more individuals

access to salary sacrifice or whether we can get a weekly payment for ALU which means

individuals can spread the payment in a similar way to how POAL is paid.

My message is to encourage those individuals who purchase additional leave to continue to

do so, and we will continue to try and improve the repayment plan for this.

Please see attached Annex A which explains in more detail the issues with the minimum

wage law.

Any enquiries relating to the content of this LTB should be referred to the DGSP department