HMRC have now resolved ambiguities regarding annual leave in the time of coronavirus once and for all with a new piece of guidance which specifically address holiday pay and entitlement. The guidance which expands upon the very brief information previously provided by HMRC, confirms both that annual leave can be taken without interrupting the period of furlough, and that employees can be required to take annual leave.
Can employees take annual leave during furlough?
Yes, the Government have confirmed that employees can take annual leave, including bank holidays as normal, without disrupting the period of furlough, and normal holiday booking procedures should apply.
Bank holidays during Furlough
HMRC guidance states that, where an employee would usually take annual leave on a bank holiday, then employers agree with furloughed employees that the bank holiday is taken as annual leave, or require the furloughed worker take the day as annual leave by giving the appropriate notice.
However, given that this guidance has only recently been published, this may leave employers in a quandary over the Easter bank holidays and May bank holidays, if they have not either sought employee’s agreement, or given notice.
Our view is that, if employees’ contract of employment stipulates that bank holidays are automatically deducted from the employee’s annual leave entitlement, employers may rely upon this as sufficient notice that bank holiday is to be taken as a day of annual leave. Alternatively, the employer can defer the holiday until the employee returns to work, although this may give rise to problems in respect of employees being able to take all of their annual leave before the end of the holiday year.
We would recommend that employers notify employees of arrangements for annual leave during the period of furlough, and confirm whether employees will be deemed to have taken bank holidays as annual leave, and will receive 100% pay for these days, or whether the holiday will be deferred.
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What should employees be paid during annual leave?
Furloughed employees will be entitled to their normal pay during periods of annual leave. For workers with regular hours and pay, then holiday pay can be calculated on these hours. Holiday pay for workers with variable pay should be calculated in accordance with current legislation – pay should be based upon an average of the past 52 weeks, excluding any weeks in which there was no renumeration, for example, the worker was on unpaid leave, or lay-off.
Employers who only pay 80% of the employee’s normal wage during periods of annual leave will be at risk of holiday pay claims.
What should employees be paid during annual leave?
Furloughed employees will be entitled to their normal pay during periods of annual leave. For workers with regular hours and pay, then holiday pay can be calculated on these hours. Holiday pay for workers with variable pay should be calculated in accordance with current legislation – pay should be based upon an average of the past 52 weeks, excluding any weeks in which there was no renumeration, for example, the worker was on unpaid leave, or lay-off.
Employers who only pay 80% of the employee’s normal wage during periods of annual leave will be at risk of holiday pay claims.
Can I reclaim holiday pay through the Coronavirus Retention Scheme?
The guidance now confirms that employers can continue to claim the 80% grant to cover most of the cost of holiday pay during periods of furlough.
Can employees be forced to take annual leave during furlough?
Employers can require employees to take holiday in the normal way – by providing twice as much notice as the length of the period of annual leave they are required to take, e.g. ten days’ notice to take five days’ leave. This will likely be an attractive option for employers who have furloughed a large part of their workforce and will struggle to manage annual leave requests later in the year.
However, employers who force employees to use all of their annual leave entitlement during periods of furlough could potentially be open to challenge by employees who feel they have not be able to take advantage of their right to holiday. The purpose of annual leave is to provide employees with the opportunity to relax and engage in leisure activities, and the guidance advises employers to consider whether current restrictions and social distancing measures would prevent the employer from relaxing and enjoying their annual leave.
As restrictions gradually lift and, for example, individuals are to take unlimited outdoor exercise, we believe any such protest will lose much of its weight, although may still be relevant in respect of those employees who required to stay home and shield, or are caring for a vulnerable family member.
In what circumstances can employees carry over annual leave?
The Government have recently passed The Working Time (Coronavirus) (Amendment) Regulations 2020 which enable workers to carry forward holiday for up to two holidays years, if it has not been reasonably practicable to take all their annual leave in the current holiday year due to the impact of Coronavirus. Whilst it was initially assumed that those employees who have been furloughed would be eligible to carry forward leave under the new regulations, this does not appear to be the case, as furloughed employees are able to take annual leave during their period of furlough.
An exception to this may be where the employer is unable to fund employee’s taking periods of annual leave during the furlough. However, if employees still have reasonable opportunity to take their annual leave once they return to work, e.g. they return to work on 31st July, and the holiday year ends on 31st December, then it would be considered reasonably practicable for the employee to take their leave. The HMRC guidance encourages employers to facilitate the taking of annual leave by requiring employees take annual leave where necessary.
In summary, the HMRC guidance essentially confirms that, for those on furlough, it is business as usual where annual leave is concerned – holidays should be booked, enforced, cancelled and paid in line with normal procedures and current legislation.
Get in touch with our Employment Law team for support and advice with any specific questions you have surrounding the taking of annual leave during furlough.
