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 hford@cwu.org.
Yours sincerely,
Martin Walsh
Deputy General Secretary (Postal)
CWU Eastern No5 Branch 
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