Holidays, Furlough Leave and the Job Retention Scheme

Please note this article was drafted HMRC guidance was updated on 15 April 2020 and ACAS guidance was updated on 16 April 2020 and is based on previous ACAS advice.  

The government’s Job Retention Scheme (JRS) will be a lifeline for many businesses and HMRC guidance as to the mechanics of the scheme are slowly making their way through; however, as we move into the Easter break the relationship between holiday (and Bank Holidays), furlough leave and claiming government wage grants under the JRS is still causing headaches for employers and practitioners alike. Emma O’Connor of the Employment Group discusses what we know (and don’t) and how employers can navigate their way through the guidance to date. 

Late on 4 April 2020 the government issued further guidance to its Job Retention Scheme (JRS) - yet just with its first guidance, there was one thing missing: holiday. As we move towards Easter with its 2 Bank Holidays and prebooked holiday for many employees – many of whom may have been placed on furlough leave – just what are these furloughed employees entitled to be paid? Also, is their pre-booked holiday a waste? 

Without government guidance, we turn to ACAS who have produced a useful (but non-binding) set of guidelines for employers managing the workface implications of coronavirus. This too was updated on 2 April 2020 (https://www.acas.org.uk/coronavirus/using-holiday) and one cannot imagine the advice contained would be prejudicial to employers accessing the JRS. In this note we use employees; however, as we know rights to holiday and holiday pay is extended to workers (who if on PAYE and meet other criteria, can also be paid through the JRS).

So let’s look at what we know from the government and ACAS and try to fit the pieces of the puzzle together:

Does holiday/annual leave (AL) accrue during FL?

Yes – we know that during furlough leave (FL), “employees still have the same rights at work” which includes the accrual of holidays. However, employees are entitled to different types of holidays – holidays under the Working Time Regulations 1998 (WTR) (5.6 weeks) and maybe enhanced holidays under their contracts of employment. It would appear that, although, holiday accrues, employers could say that whilst on FL, it is only this basic WTR that accrues. There could be benefits of this; for example, making sure that employees do not carry forward too much holiday when the JRS ends. If employers do see the benefit of capping holiday accrual to that of WTR holiday, then take advice to discuss how this could work in practice. Employers will need to write to employees to agree to the changes. However, will capping holiday accrual make much of a difference in practice if employees have greater opportunity to carry forward any untaken holiday – it could be one issue to many for employers to fight at this time (see below).

Can employees take holiday whilst on FL?

Yes – the updated ACAS guide states that employees can take holiday whilst on FL: “If an employee is 'furloughed' (temporarily sent home because there’s no work), they can still request and take their holiday in the usual way.” Taking holiday does not break the chain of FL if the employee requests it. Employees should still comply with the normal notification rules in holiday policies so thinking about how this is achieved “remotely” would be wise.

Can employers require employees to take AL during FL?

Possibly – in theory under the WTR, holidays are to be taken at times convenient to the employer and provided the employer gives twice the notice for the holiday it wants the employee to take, employees would need to take holiday when designated. Employers might want their employees to take AL so they use it up before they come back to work or other decisions have to be made about their employment moving forward. However, it would be prudent that employers do not compel employees to take holiday during the first 3 weeks of FL (the minimum FL period) as this may, potentially, impact upon the employer’s ability to claim under the JRS. But there are other considerations in compelling employees to take holiday as we discuss.

Could employers just “run-down” an employee’s accrued holiday entitlement during FL to avoid them having to take when they are back working?

Some employer’s may see FL as an opportunity to require holiday to be taken – or certainly the holiday which has accrued to date. But there are risks with this, not just the issue with compelling holiday to be taken during the first 3 weeks of FL. Although ACAS says employers can require employees to take holiday during FL, it should be remembered the purpose of holiday is for the employee to enjoy rest and leisure – at this time, for many, this is simply not possible. If employers arbitrarily require employees to take annual leave during furlough, this could be an abuse of the employer’s powers. 

Should employers refuse holiday requests for employees on FL?

It will depend on the individual employer. Some may want their employees to take holiday to avoid it being “stored-up” to a time when they want their employees to be working. Others will not. All we can say is decide what is right for your business and be consistent and fair in how you apply your policies and rules.

With four bank holidays during the furlough scheme period (10 April, 13 April, 8 May and 25 May), what should employers be doing?

The first point is check Contracts of Employment or Holiday Rules and see whether Bank Holidays are included or excluded within employee’s holiday. ACAS talk about whether Bank Holidays are (a) part of holiday, (b) where an employee either works Bank Holidays or (c) where it is not part of holiday entitlement. Where Bank Holidays are part of holiday entitlement, ACAS says bank holidays should be taken as usual and employees should receive their “normal pay”. 

But what if Bank Holidays are usually worked by employees or are required to be “booked”? If employees usually work on bank holidays but are currently furloughed, ACAS recommend that employees should check with their employer to see if they have to take holiday on that day or if they can take the time off at a later date (bearing in mind the points we have raised above). If employees cannot take bank holidays off due to coronavirus, they should use the holiday at a later date in their leave year or bank holidays can be included in the 4 weeks’ paid holiday that can be carried over, including for 2 years under changes to the WTR. 

Also, it seems that the Bank Holidays will not break the chain of furlough leave for JRS purposes. 

Can employees cancel pre-booked holiday?

Possibly, but the employer would have to agree. Certainly the health and safety aspects of holiday would be an issue – if the employee can no longer enjoy their holiday for leisure and enjoyment because they are at home, looking after/schooling children perhaps allowing holiday to be taken at a later date or carried over would be recommended. Each business is different.

Can the employer cancel an employee’s prebooked holiday?

Yes – but they must give staff at least the same number of days’ notice as the original holiday request. This could cause issues if the employee had booked a holiday – but no-one is going anywhere and they may appreciate being able to take the holiday at another point in time. 

What are employees paid if they take holiday during FL?

The government guide is silent on this, although the ACAS guide says that pay for Bank Holidays is “normal” (pre-furlough leave) pay allowing the employer to continue to reclaim 80% under the JRS but top up the additional 20% (which cannot be reclaimed under the JRS). This would seem the sensible interpretation of the law relating to holiday pay in that with regards to the holiday under the WTR, holiday pay is based on the employee’s usual pay. The employer could reclaim the 80% through the JRS; however, the additional 20% relating to the “normal” pay element (so any commission, bonus, 100% earnings), could not be recovered.

Could an employer limit what it pays its employees whilst on holiday? Could employers agree to pay “normal pay” for WTR holiday but less for contractual holiday (if this to accrue too during FL) during FL? Could employers pay 80% now and top-up at a later date when things look better financially for the business? It really does depend on the business and advice should always be sought; however, the “safest” course to avoid litigation would be to pay the full, pre-furlough rate of remuneration as holiday pay. 

New rules on carryover?

If the employee is prevented from taking holiday because of coronavirus, they are now allowed to carry over 20 days basic EU holiday for 2 holiday years after the end of their current holiday year.

http://www.legislation.gov.uk/uksi/2020/365/made

What about other holiday not taken?

Some contracts will allow for holiday to be carried over so check. In the absence of any contractual provision to carry over, employers could decide to allow additional holiday to be carried over, but there is nothing in the new holiday legislation compelling this.

Whilst employers should be guided by their contracts of employment when it comes to holiday, if we look at the information we have to date, some issues are clear, some are not. As we move closer towards Easter and the Bank Holidays, we hope to receive further guidance from the government on the issue of holiday pay; however, this seems to be the most sensible approach for businesses to take. You should always take specific advice.