20th April 2020

Furlough and annual leave

What does it now mean? Well it seems that not a week has gone by where, on a Friday evening, the Government has provided further guidance about the furlough leave scheme. Last week was no exception and as well as extending the scheme until 30 June, eagerly awaited information about what happens with annual leave has now been provided.

So what does the employee’s guidance say? Very briefly, it states:

  • “Employees can take holiday whilst on furlough. Working Time Regulations require holiday pay to be paid at the employee’s normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks. Therefore, if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations.”
  • “Employers will be obliged to pay additional amounts over the grant, though will have the flexibility to restrict when leave can be taken if there is a business need. This applies for both the furlough period and the recovery period.”
  • “If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.”

What does this mean for employers? We have answered the most common questions asked:

Can employees take holiday whilst they are furloughed?

Yes. If you are happy to agree to their request, employees can make a request to take annual leave (or have previous confirmed requests honoured) and you can agree to them taking it whilst they are furloughed.

This will come as good news for employers who will benefit from some of the cost of annual leave being covered by the government grant. However, for those employees who are having their pay topped up, there is little incentive to ask for holiday and, even for those employees on 80% of pay, they may prefer to keep the holidays for when they can actually go somewhere.

We have agreed a reduction in pay for employees on furlough leave. Do we have to “top up” to their normal rate of pay where holiday is taken?

Yes. Both the law on holidays and the latest government guidance is clear that you must do this. If you fail to do so, affected employees could bring a claim against you for failing to meet your obligations to them in respect of their holiday.

What about bank holidays – can we treat them as holidays?

Where an employee would usually take a bank holiday off work as holiday, provided that you “top up” any pay received during furlough leave in respect of these days to their normal salary levels, you can count recent and forthcoming bank holidays as holiday in the usual way.

For those employers who treat bank holidays as a normal working day and employees do not automatically get the day off, see our comments above and below about handling requests for holiday and compelling employees to take holidays.

Can we stop employees taking holiday?

Yes, but why would an employer want to prevent this? Even with the top up, employers would still benefit from the employees taking holidays during furlough leave rather than at a later date.

Can we require employees to take holiday whilst they are on furlough leave to avoid them taking large blocks of accrued and untaken leave when they return from furlough?

For employers, this is the key question and, unfortunately, there is still no clear answer to this question, especially as it is the Employee’s guidance that refers to holidays.

Whilst there are provisions in law which allow employers to require employees to take holiday at certain periods (provided that they give employees advance notice of at least twice the amount of leave that is to be taken), there is also case law which suggests that any such request by an employer will not be valid if the leave itself would not be “meaningful”. Arguably, requiring employees to take holiday when they would not be expected to work anyway would not result in the leave (which is intended for rest and recovery and as a health and safety measure) being meaningful. This has therefore led to commentators having conflicting views about this point.

Our opinion (which is of course open to challenge until we get more definitive guidance) is that as the guidance is now clear about employees being able to be on annual leave whilst they are furloughed and therefore removing the risk that doing so would jeopardise the right to receive the government grant in respect of their wages.

With that in mind, and to minimise the risk of employees returning to work and taking large blocks of accrued and unused leave, it is worth employers considering asking employees to take some of their annual leave whilst they are furloughed, and ensuring that their wages in respect of such periods are “topped up” to their usual rate of pay. We do not suggest that employers ask employees to take their full years’ entitlement whilst they are furloughed (this will likely heighten the risk of challenge), but instead suggest that a pragmatic, and more “reasonable” approach would perhaps be asking employees to take a proportion of their leave entitlement (such as an amount which correlates which how long they are or are likely to be furloughed). This could also apply to the bank holidays in May. Obtaining the employee’s agreement to taking such leave is likely to be better received than simply compelling to them to do so but the latter is of course an option when faced with refusal.

Until more definitive guidance is received on this point, this approach is not entirely without risk but, even if such guidance is provided which does not allow the compulsion of employees to take holiday, there will remain the option for employers to credit any leave that has been taken in this way to the employees with the “top up” payment later being recovered as an over payment of wages, in the event of challenge.

Is this the government’s final say on the point?

It would seem not. The guidance specifically says “during this unprecedented time, we are keeping the policy on holiday pay during furlough under review” and so it seems highly likely that we will receive some more definitive guidance about this in the near future (perhaps this Friday once everyone has clocked off for the weekend as seems to be the trend!).

Need some advice on the furlough scheme, we’re here for you – get in touch.

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