Holiday pay and annual leave on furlough

UPDATE: On 3 March 2021, in his Budget announcement, the Chancellor announced an extension of the furlough scheme to the end of September 2021 for all parts of the UK. The Government’s contribution to employees’ wages remains at 80% for hours not worked up to a cap of £2,500 per month but only to the end of June 2021. Employers will be required to contribute to wages for hours not worked, specifically, 10% from July 2021 and 20% in August and September 2021. The Job Support Scheme and its extension for closed businesses remain postponed. For more details of other recent furlough developments, read our articles on the extension of furlough and what furlough means for employers. 

The Coronavirus Job Retention Scheme, more commonly known as the furlough scheme, was first announced on 20 March. There was considerable uncertainty initially surrounding holiday pay and annual leave whilst employees were on furlough. The position was clarified to some extent on 17 April when ACAS guidance and Government guidance specified that holiday accrued during furlough and could be taken during it.

The issue of coronavirus, holiday pay and annual leave on furlough raises a number of complex issues. In light of this, the comprehensive Government guidance published on 13 May, Holiday entitlement and pay during coronavirus is to be welcomed.

The purpose of the guidance is to help employers understand their legal obligations regarding workers who continue to work and those who are furloughed. It provides an explanation of how holiday entitlement and pay operate during the coronavirus pandemic and where it differs from the standard holiday entitlement and pay guidance.

Employers making use of the furlough scheme will find the guidance helpful because there are sections that deal specifically with furloughed workers and holiday.

Annual leave on furlough key points

• Workers who are furloughed continue to accrue statutory holiday entitlements, and any additional holiday provided for under their employment contract.
• Workers on furlough can take holiday without disrupting their furlough. If an employer requires a worker to take holiday while on furlough, the employer should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.
• Where a bank holiday falls inside a worker’s period of furlough and the worker would have usually worked the bank holiday, their furlough will be unaffected by the bank holiday.
• However, if the worker would usually have had the bank holiday as annual leave, there are two options. Firstly, if the employer and the worker agree that the bank holiday can be taken as annual leave while on furlough, the employer must pay the correct holiday pay for the worker. Secondly, if the employer and the worker agree that the bank holiday is deferred and will not be taken as annual leave at that time, the worker must still receive the day of annual leave that they would have received at a later date.
• If a worker on furlough takes annual leave, an employer must calculate and pay the correct holiday pay based on usual earnings and not the furlough rate. Where this calculated rate is above the pay the worker receives while on furlough, the employer must pay the difference, that is, between the 80% and 100%. However, as taking annual leave does not break the furlough period, the employer can continue to claim the 80% grant to cover most of the cost of holiday pay.
• 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 (unless they need to socially distance or self-isolate). However, to do so they must be paid the correct holiday pay. 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 forwards.

Carrying forward annual leave on furlough

The position about carrying forward leave is interesting. The Working Time (Coronavirus) (Amendment) Regulations 2020, came into effect on 26 March and made the headlines. They provide that untaken leave can be carried over into the following two leave years where it has not been reasonably practicable for a worker to take some or all of the basic four weeks’ annual leave (the minimum period of paid leave under the Working Time Directive) due to the effects of coronavirus.

As can be seen from the above, the guidance states that furloughed workers, unless socially distancing or self-isolating, are unlikely to need to carry over leave because they can take annual leave while on furlough. However, it is arguable that time on furlough does not equate to a period of “holiday”, the purpose of which is to rest, relax and enjoy leisure time. Perhaps we will see litigation on this point in the future?

Carrying forward annual leave whilst continuing to work

For workers who continue to work, that is, who are not furloughed, the guidance considers the issue of what is meant by “reasonably practicable” in considerable detail. In establishing whether it was not reasonably practicable to take leave because of coronavirus, and as a result, being able to carry forward leave, employers should take a range of factors into account:

• 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 particular 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.

The guidance goes on to state that employers should do everything reasonably practicable to ensure that the worker can take as much of their leave as possible in the year to which it relates. Where leave is carried forward, as a matter of best practice, workers should be able to take annual leave at the earliest practicable opportunity.

Finally, note that the guidance also covers the position of furloughed agency workers, looking at issues such as accrual of leave, taking leave and holiday pay during furlough.

With an estimated 4.7 million workers currently furloughed and an extension of the furlough scheme through to the end of September 2021, the Government guidance is still very relevant and our employment lawyers are here to assist if you have any queries.

For more details on how to handle holiday requests during the pandemic please see our recent article here.