Holiday and furlough – what do employers need to know?

One of the issues that has been unclear surrounding the Coronavirus Job Retention Scheme (CJRS) since its introduction has been the interplay between holiday and periods of furlough. As the CJRS has been extended until the end of April 2021, this issue may become increasingly important to employers seeking to manage employees’ holiday entitlement.

Background

Initial Government guidance on the CJRS did not refer to the interaction between holiday and periods of furlough. This led to concerns about allowing or requiring workers to take annual leave during furlough. In particular, that a period of annual leave might interrupt or end the period of furlough, which had to be taken in a minimum block of three weeks, and that this might jeopardise the employer’s ability to claim under the scheme; that holiday might not be treated as furlough and so holiday pay might not be recoverable under the scheme; or that an employer might not be able to recover the holiday pay in full.

These concerns led to some employers notifying employees that holiday could not be taken during furlough, and that any bank holidays that fell during the furlough would be deferred to a later date.

However, as the CJRS has been extended to the end of April 2021, employees could potentially have been furloughed for over 12 months. The issue of holiday may therefore increasingly cause concern for employers.

Flexible furlough provisions have applied since 1 July. See our separate post for further details. Under the flexible furlough provisions, employees are able to work on a part time basis. The employer will still be able to claim the furlough grant for the hours that the flexibly furloughed employees do not work, compared to the hours they would normally have worked in that period (‘non-working furloughed hours’).

On 13 May, the Government published guidance on holiday during Coronavirus. Although the guidance clarifies some issues, others remain unclear. The guidance has not been updated following the introduction of the flexible furlough provisions. However, the “Check if you can claim for your employee’s wages through the Coronavirus Job Retention Scheme” guidance (‘CJRS guidance’) and the “Steps to take before calculating your claim using the Coronavirus Job Retention Scheme” guidance (‘Steps guidance’) have been updated to refer to holiday pay during flexible furlough. So, what is the current position on holiday during furlough?

Does an employee continue to accrue holiday during furlough?

Yes. The guidance specifically clarifies that employees continue to accrue holiday during any period of furlough. This is consistent with the Working Time Regulations (WTR) as employees remain employed during furlough. The introduction of flexible furlough does not affect the accrual of annual leave.

It is possible for an employer to seek agreement from employees that any contractual holiday in excess of the statutory entitlement does not accrue during furlough. However, any agreement must not result in the employee being entitled to less than 5.6 weeks holiday during the leave year. If such an agreement was put in place during full furlough, employers may wish to review how to deal with accrual of contractual holiday if employees return to work part-time under a flexible furlough agreement.

Can an employee ask to take holiday during furlough?

Yes. The guidance states that employees can take holiday without disrupting their furlough. This gives reassurance to employers that allowing employees to take holiday during furlough will not affect their eligibility to claim the grant under the CJRS.

If the employee is working part-time on a flexible furlough arrangement, the CJRS and Steps guidance state that any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours.

Can an employer prevent an employee from taking holiday during furlough?

Yes, in our view. This is because the WTR allows an employer to require employees not to take holiday on specified dates.

In addition, under the WTR if an employee requests holiday, an employer can give counter-notice that the request is refused. The notice given by the employer must be the same as the number of days holiday requested. So, if an employee requests 5 days holiday, an employer can give 5 days’ notice that the request is refused. However, employers should check whether these notice provisions have been varied by their contracts of employment or holiday policies.

An employer may wish to do this, for example, because they cannot afford to top up the employee’s pay during any holiday period (see below).

Can an employer require an employee to take holiday during furlough?

This is not clear. Under the WTR, an employer can give notice requiring employees who are not on sick leave to take statutory holiday on specified dates. The notice must be at least twice the length of the period of leave that the worker is being ordered to take. So, if the employer requires employees to take one weeks’ leave, it must give at least two weeks’ notice to the employee. Workers are entitled to take statutory annual leave during sickness absence but may not be compelled by the employer to do so.

These notice provisions can be amended or disapplied, but only by a “relevant agreement”, which means a written contract (including an employment contract), a collective agreement that is incorporated into the employees’ contract, or a workforce agreement. Employers should check their contracts of employment and holiday policies carefully before requiring an employee to take holiday.

Employers may consider that there is a financial benefit in requiring employees to take holiday during the furlough period. Although the employer will have to top up the employee’s pay during holiday (see below), they will be able to claim 80% of the employee’s pay under the terms of the CJRS.

Now that the scheme has been extended to the end of April 2021, there may also be practical reasons for requiring employees to take holiday, for example, so that the employee’s entitlement does not build up to such a level that an employer cannot accommodate requests towards the end of the holiday year.

The Government guidance states that notice requirements for an employer requiring an employee to take leave continue to apply during furlough. The guidance states: “Employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so.”

However, the guidance goes on to state: “If an employer requires a worker to take holiday while on furlough, the employer should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.” This is likely to be difficult for an employer to assess.

There is still a risk in our view that employers cannot require employees to take holiday during furlough because employees cannot rest or relax during a period of enforced lockdown. However, where restrictions are eased, and individuals have greater freedom, the argument that an employee is not able to rest, relax and enjoy leisure time becomes weaker. Unfortunately, this is an issue that is not likely to be resolved for some time. Government guidance is not law, and claims relating to alleged breaches of the WTR will fall to be determined by the Employment Tribunals.

However, the CJRS and Steps guidance go on to state that employees should not be placed on furlough for a period simply because they are on holiday for that period. In particular, “this means that employees should only be placed on furlough because your operations have been affected by coronavirus and not just because they are on paid leave.”

What happens if a bank holiday falls during the furlough period?

The Government guidance states that where the furloughed employee would usually have had a bank holiday as annual leave, the employer has two options. The first option is that the bank holiday is taken as annual leave. However, the guidance states that this applies if the employer and the employee agree that the bank holiday can be taken as annual leave; or if the employer requires the employee to take the bank holiday as annual leave by giving the correct notice period (see above). The second option is that the employer and the employee agree that the bank holiday will not be taken as annual leave at that time, the holiday can be deferred to a later date.

Although it is not specifically mentioned in the guidance, our view is that an employer can still require an employee not to take the bank holiday during furlough and defer the entitlement to a later date. However, the employer must comply with the notice requirements to do so (see above).

If an employee takes holiday during furlough, how much must they be paid?

If a furloughed employee takes holiday during furlough, the employee must be paid based on their usual holiday pay. The employer can still claim 80% of the pay under the CJRS but must then top up the difference.

It is possible that working part-time on flexible furlough may affect the rate of holiday for an employee whose pay varies. This is because in those cases, holiday pay is calculated on the basis of average pay over the previous 52 working weeks. However, employees who take holiday during furlough should receive “normal remuneration” for their statutory holiday pay. Our view is that statutory holiday should be based on their usual holiday pay, not taking into account reduced furlough pay, otherwise the employee’s holiday pay could be artificially reduced by the part-time working. Any holiday taken during the employee’s usual working hours should therefore be paid by the employer based on their usual holiday pay. The government guidance “Calculate how much you can claim using the Coronavirus Job Retention Scheme” states: “If any of the furlough hours are taken as paid holiday or annual leave, you need to top up the pay for these hours to the employee’s full contracted rate.”

Can an employee carry forward holiday?

Under the Working Time Regulations, the statutory minimum of 4 weeks’ holiday cannot be carried forward into future leave years. The additional statutory holiday of 1.6 weeks can be carried forward if there is a relevant agreement (see above).

However, legislation was introduced with effect from 26 March 2020 which provides that an employee can carry forward their statutory minimum of 4 weeks if it was not reasonably practicable to take it in the leave year as a result of the effects of coronavirus.

The Government guidance sets out the factors that should be considered by employers when deciding whether it is reasonably practicable to take holiday. These include:

whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the employee to continue to be at work and cannot be met through alternative practical measures;
the extent to which the business’ workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities;
the health of the employee and how soon they need to take a period of rest and relaxation;
the length of time remaining in the employee’s leave year, to enable the employee to take holiday at a later date within the leave year;
the extent to which the employee taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation;
the ability of the remainder of the available workforce to provide cover for the employee going on leave.

However, the guidance goes on to state: “Employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity.”

In many cases, it will still be possible for employees to take their statutory holiday during the current leave year. The guidance clarifies that: “Workers who are on furlough are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period”.

However, if the employer is unable to afford to top up the employee’s pay during a period of holiday due to the impact of coronavirus, the guidance states that this is a factor that is likely to make it not reasonably practicable for the worker to take their leave, enabling the employee to carry their holiday forward.

Any holiday carried forward under the new regulations must be taken within the next two leave years.

Provision for carry forward of the statutory additional leave (1.6 weeks) is for agreement between the employer and the employee. However, employers must allow an employee to take a minimum of 5.6 weeks’ holiday in any leave year. If, due to particular circumstances as a result of Coronavirus, an employee is unable to take 5.6 weeks’ leave, the employer should consider putting in place an agreement allowing that employee to carry forward the additional 1.6 weeks in addition to the 4 weeks. Failure to do so could result in a breach of the WTR.

Carry forward of any further contractual holiday entitlement is a matter for agreement between the employer and the employee.

Can an employer pay an employee in lieu of their holiday?

An employer cannot pay an employee in lieu of the 5.6 weeks’ holiday (including where this is carried forward) other than on termination of employment.

Payment in lieu of any further contractual holiday entitlement depends on the contract of employment, holiday policy, or agreement between the employer and employee.

First published 27 May 2020. Updated 22 December 2020.

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