From the of launch of the government’s Coronavirus Job Retention Scheme there was uncertainty around how it interacted with employees’ entitlements to holiday leave and pay. Because furlough leave is a new concept in employment law, it has been necessary to wait for guidance from the government on the finer points.

The government has now published this guidance. This has confirmed what we suspected the position to be with furlough leave and holiday. The guidance also touches on emergency legislation allowing carry-over of minimum statutory annual leave.

The key points are as follows:

• Employees continue to accrue holiday while they are on furlough leave at the same rate they otherwise would.
• Employees can use their holiday while furloughed. Taking holiday will not interrupt a period of furlough, meaning employers can continue to claim under the furlough scheme for employees using annual leave. Please see below though with regard to topping up furlough pay for periods of holiday.
• Provided the correct notice is given, employers have the right to require employees to use their statutory annual leave and this right continues to apply with furloughed employees. An employer must provide notice of at least twice the length of the holiday the employee is required to take. Therefore, if an employer requires an employee to take one week’s holiday, they should give at least two weeks’ notice of this. It is good practice for such notice to be in writing.
• Employees’ statutory holiday entitlement is 5.6 weeks (28 days including Bank Holidays for full time employees). Where employees are contractually entitled to more than the statutory minimum holiday, they can be required to use their excess entitlement where the contract provides for this.
• Employees can only be required to use annual leave when it is possible for them, in principle, to have a break from work. Employees who are unwell therefore should not be required to take annual leave while they are sick. Employees who are unwell can choose to use holiday while sick, but cannot be required to.
• Employers also have the right to cancel employee annual leave or to require employees not to take annual leave on a certain date provided the correct notice is given. The notice that must be given is the length of the holiday to be taken. For example, if an employee has booked two days’ annual leave, an employer can cancel this by giving two days’ notice.
• When employees take holiday while furloughed they need to be paid the holiday pay they would usually receive for this time were they not furloughed. Therefore, employees with regular hours should be paid their usual pre-furlough rate of pay for holiday. If pay has been reduced to 80% or £2,500 per month, it will be necessary for employers to top up to 100% pay for periods of holiday.
• Where employees do not work regular hours or their pay for regular hours varies, their statutory holiday pay entitlement needs to be calculated based on their average weekly earnings in the 52 weeks prior to the relevant holiday. Weeks where no money was earned should not be included. The weeks in respect of which furlough pay was received should be included in the 52 week calculation.
• The basic rule is that employees should not receive less pay than they usually would because they are using their holiday entitlement.
• If employees are contractually entitled to take Bank Holidays off, they should receive holiday pay for such days falling within a period of furlough leave unless they agree to such days’ annual leave being deferred.
• The new government guidance also explains emergency legislation recently introduced. Previously, other than in very limited circumstances, employees have been required to take at least four of their 5.6 weeks’ statutory holiday in each year without any carry-over and the 1.6 weeks’ holiday can only be carried over if there is a written agreement between the employer and employee. The emergency legislation has allowed more than 1.6 weeks’ carry-over to the following two holiday years where “it has not been reasonably practicable” for an employee to take at least four weeks’ annual leave “due to the effects of the Coronavirus.” Annual leave may not be “reasonably practicable to take” for a number of reasons and the legislation is not restrictive. The guidance lists a number of factors that employers should consider before such carry-over is permitted, including whether the business has faced a significant increase in demand due to Coronavirus and the health and wellbeing of employees. The guidance urges employers to enable employees to take annual leave in the year to which it relates wherever possible. The emergency legislation might also be relied upon where an employer cannot afford to top up furloughed employees’ holiday pay in the current holiday year, although the employee must receive their full holiday entitlement in the following two holiday years.

It is in employers’ interests to consider how they approach the holiday entitlements of their furloughed employees.

Employees’ holiday entitlements will continue to accrue while they are furloughed and employers should consider requiring them to take holiday in this time. Although employers will bear the financial burden of topping up furlough pay, requiring the use of annual leave will avoid the potential issue of employees having accrued large quantities of holiday to use when they return to work after the furlough scheme ends, which could disrupt business.

It is also worth bearing in mind that employees are entitled to be paid for accrued and outstanding annual leave if they are made redundant. Requiring the taking of holiday during the furlough period will reduce the amount of payment in lieu of holiday pay to be paid on termination, particularly if it is after the furlough period has ended.

Legal issues around holiday entitlements can prove to be complicated, particularly where employees do not work regular hours. Our Employment team are happy to answer any queries you may have, you can contact them here.

The government guidance can be found here.