22 Apr 2020

Accrual of holiday entitlement whilst on furlough leave under the Job Retention Scheme (“JRS”)

After weeks of uncertainty, the position on holiday pay for furloughed workers was finally addressed by government guidance published late on Friday 17 April.

As expected, government guidance confirmed that holiday entitlements would continue to accrue for furloughed workers unless otherwise agreed between the employer and employee. This article covers the following points.

  1. Taking holiday whilst on furlough leave
  2. Can employers force furloughed employees to take annual leave?
  3. Is there a distinction between contractual and statutory leave under the holiday entitlements within the JRS?
  4. Can the position change?

1. Taking holiday whilst on furlough leave

Government guidance also clarified that furloughed employees can take holiday whilst on furlough. This is a welcome clarification especially as several bank holidays fall during the lockdown period and will ease employers’ concerns about furloughed employees returning to work with significant accrued holiday entitlements.

Whilst the guidance is clear that holiday can be taken during the furlough period it also reminds employers that under the Working Time Regulations, holiday pay should be paid to each employee at either their normal rate of pay or the average pay received in the previous 52 working week reference period where an employee receives variable pay. As the JRS only permits employers to reclaim 80% of employees’ wages, it will be for the employer to cover the remaining 20% of the wages where holiday leave coincides with the furlough period.

In light of the extension to the JRS till the end of June, it is very likely that employers will be encouraging furloughed employees to take holiday during furlough to ensure that that they are able to return to their workplaces once the lockdown eases. Whether the employer can afford to cover the cost of holiday is likely to be a determining factor as to whether they request employees take all or some of their holiday entitlement.

A furloughed employee may even consider requesting that some of their furlough period be treated as annual leave considering they can recover 100% pay. However, the updated government guidance suggests that employers have the “flexibility to restrict when leave can be taken if there is a business need” so any such request may be refused. This flexibility will likely be used by those businesses who do not have the cash flow to pay the 20% top up on wages.

2. Can employers force furloughed employees to take annual leave?

The guidance does not address this point and therefore the position remains unclear. In our view, general employment law principles will continue to apply and any forced holiday leave will require the employer to give their furloughed employees notice which is at least twice as long as the time they are requesting that the employee take as annual leave. For furloughed employees who do not have significant accrued entitlements notice may be easily given, however for those with longer accrued periods this may be more difficult. The extension of the JRS scheme till the end of June may allow employers who act quickly in serving notice to implement periods of forced annual leave in June.

Employers should bear in mind however, that due to the recent amendment to the Working Time Regulations, up to four weeks of annual leave can be carried over into the next two leave years where it is not “reasonably practicable” to take leave because of the effects of coronavirus. In addition, and subject to the agreement of the employee, the remaining 1.6 weeks may also be carried over into the next leave year.

It is yet to be seen whether the forced annual leave approach will be deemed by HMRC to be against the spirit of the JRS as it may be seen as taking advantage of the government’s support. Any forced annual leave during the furlough period would see the government subsidising 80% of holiday pay which the employer would otherwise have had to pay to its employee.

3. Is there a distinction between contractual and statutory leave under the holiday entitlements within the JRS?

Again, this is something which was not covered in the guidance and is therefore left to interpretation. Given the lack of guidance on this point it would appear that no distinction should be made under the JRS between the two categories of leave.

4. Can the position change?

Employers should be aware that these messages from government and HMRC are only being provided as guidance, these are not yet regulations or laws which have been put into effect. This is of particular importance considering the government’s indication that the policy on holiday pay during furlough will be kept “under review”. It is therefore unclear whether the position described above will change in the future. 

Contact us

If you have any questions about these issues in relation to your own organisation, please contact a member of the team or speak with your usual Fox Williams contact.

Articles and commentary by our legal experts on the impact of Covid-19 are all available here.

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