Furlough Leave and Holiday

Coronavirus Job Retention Scheme (the “Scheme”) was launched on 20 March 2020. The Scheme allows employers to reach agreement with employees to cease work and become ‘furloughed’ (an entirely new employment law concept). The Scheme is designed so that the Government will make payments to the employer of up to 80% of the furloughed employees salary costs (up to a maximum of £2,500).

Given that the Scheme provides (until the end of July at least) that employees who are furloughed cannot work, much discussion has been had with regard to holiday.

The Government issued guidance on this very area on 13 May 2020, which can be found here. This article is based on that guidance.

Holiday entitlement

Almost all workers, including zero-hour contracted workers and those on irregular hours contracts, are legally entitled to 5.6 weeks (28 days) paid holiday per year. The exception is those who are genuinely self-employed.

The statutory 5.6 weeks entitlement is split into 4 weeks (20 days) derived from EU law and an additional 1.6 weeks (8 days) from UK law. Many workers may have additional paid holiday entitlements within their contracts beyond the 5.6 weeks. This is known as contractual holiday entitlement. Workers and employers can agree to alter the term of the worker’s contracts providing the holiday entitlement does not go below the statutory minimum of 5.6 weeks.

Accrual of holiday entitlement

Workers who have been placed on furlough continue to accrue statutory holiday entitlements as well as any contractual holiday entitlement.

Taking holiday

Employers can:

  • require workers to take holiday
  • cancel worker’s holiday, if they give enough notice to the worker.

The required notice periods are:

  • double the length of the holiday if the employer wishes to require a worker to take holiday on particular days.
  • the length of the planned holiday if the employer wishes to cancel a worker’s holiday or require the worker not to take holiday on particular dates.

Employers can ask workers to take or cancel holiday with less notice but need the workers’ agreement to do so.

Can workers take holiday whilst on furlough leave?

Yes, government guidance is clear that workers can take holiday whilst on furlough leave.

Holiday pay

Holiday pay, whether the worker is on furlough or not, should be calculated based on a worker’s usual earnings with the underlying principle being that a worker should not be financially worse off by taking holiday. If a worker has regular hours and pay then the holiday pay is based on these hours. If they have variable hours or pay, the holiday pay is calculated as an average over the previous 52 weeks, excluding weeks in which there was no remuneration.

Workers on furlough leave who take holiday must be paid their correct holiday pay. Where this is above the pay the worker receives whilst on furlough the employer must pay the difference. Given that taking holiday does not break the furlough leave period the employer can continue to claim the 80% grant from the government.

Bank holidays

There is no statutory right to time off for bank holidays. Employers can include bank holidays as part of the workers’ statutory holiday entitlement if they observe bank holidays within the business, but they don’t have to.

Where a bank holiday falls inside a furlough leave period and the worker would have normally worked that bank holiday then the furlough is unaffected.

If the furloughed worker would have usually  taken the bank holiday as annual leave there are two options:

  • take the bank holiday and the employer must pay the correct holiday pay to the worker, which could be in excess of the furlough pay. Employers can require workers to take bank holidays as part of their annual leave by giving the workers the correct notice; or
  • the employer and worker can agree that the bank holiday will not be taken as holiday at that time. The holiday can be deferred and taken at a later date with full holiday pay.

Carrying over annual leave into future leave years

The government has passed new emergency legislation to ensure businesses have the flexibility they need to respond to the coronavirus pandemic and to protect workers from losing their statutory holiday entitlement (The Working Time (Coronavirus) (Amendment) Regulations 2020, laid before Parliament on 27 March 2020). These regulations enable workers to carry holiday forward where the impact of coronavirus means that it has not been reasonably practicable to take it in the leave year to which it relates.

Where it has not been reasonably practicable for the worker to take some or all of the 4 weeks’ holiday (derived from EU law) due to the effects of coronavirus, the untaken amount may be carried forward into the following 2 leave years. When calculating how much holiday a worker can carry forwards, employers must give workers the opportunity to take any leave that they cannot carry forward before the end of the leave year.

What is reasonably practicable?

When considering whether it was not reasonably practicable for a worker to take leave as a result of the coronavirus, so that they may carry untaken holiday into future leave years, an employer should consider various factors, such as:

  • whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures
  • the extent to which the business’ workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities
  • the health of the worker and how soon they need to take a period of rest and relaxation
  • the length of time remaining in the worker’s leave year, to enable the worker to take holiday at a later date within the leave year
  • the extent to which the worker taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation
  • the ability of the remainder of the available workforce to provide cover for the worker going on leave

Employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity.

Furloughed workers

Workers who are on furlough are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period (in most cases at least). However, to do so they must be paid the correct holiday pay which is likely to be higher than the rate of pay that will be covered by government grants, with the employer making up the difference. Therefore, employers will need to determine whether they can afford the cost of the difference between the furlough pay and holiday pay. If they can afford such additional cost the employer may want to actively encourage, or indeed give notice to furloughed employees to take holiday during the furlough period to avoid those returning to work later in the holiday year with still a significant amount of holiday entitlement outstanding.

If, due to the impact of coronavirus on operations, the employer is unable to fund the difference, it is likely that this would make it not reasonably practicable for the worker to take their leave, enabling the worker to carry their annual leave forward.

In this situation, the worker must still be given the opportunity to take their annual leave, at the correct holiday pay, before the carried annual leave is lost at the end of the next 2 leave years.

Handling leave that has been carried forward

When a worker carries leave forward due to the coronavirus, they will continue to accrue holiday in the next leave year. As such, they will have 2 entitlements:

  • the holiday that has been carried forward that must be taken in the next 2 leave years
  • the entitlement that relates to the new leave year

Holiday pay for leave carried forward should be calculated in the same way as set out in the section under Holiday pay above.

The data contained within this document is for general information only. No responsibility can be accepted for inaccuracies. Readers are also advised that the law and practice may change from time to time. This document is provided for information purposes only and does not constitute accounting, legal or tax advice. Professional advice should be obtained before taking or refraining from any action as a result of the contents of this document.