The tricky question of annual leave and furlough

What happens about annual leave during furlough? 

I want to start with a BIG disclaimer, this is completely uncharted territory and therefore some of what I am about to cover is untested and unknown. The information in this article is for information only and I would strongly recommend that you take advice about your own circumstances before taking action.

Unfortunately there is little or no guidance on annual leave rights during the furlough period and the guidance merely states ‘During this unprecedented time, we are keeping the policy on holiday pay during furlough under review.’

I attended a webinar run by HMRC on Wednesday 15th April 2020 to see if I could find more information on this very issue. However no information was given and in the questions box there were numerous questions about annual leave which were answered by HMRC staff with the same response ‘you will need to check this with ACAS’.

The ACAS guidance is not very helpful and therefore employers and employees are left in a situation of not really knowing!

Despite this I will try to give some answers and where it is unknown I will share the views of myself and fellow professionals.

Start with what we do know! 

Employees & Workers continue to accrue annual leave during the furlough period

It is clear that employees and workers will continue to accrue their holiday entitlement during the furlough period, and this means that there holiday entitlement is not impacted by the fact that they are not required to work.

There is an outstanding question over the accrual of holiday for zero hours employees (see below).

If you offer enhanced contractual holiday entitlement (over the minimum legal requirement of 5.6 weeks) then you can seek to agree with the employee that this will not accrue or that it is dealt with in a different way such as being paid in lieu or being used up during the furlough period.

Employees can take annual leave / holiday during the furlough period 

Employees can, if they request and you agree, take their holiday during the furlough period in the normal way. This will not break the furlough period and you can continue to claim wages in the same way.

If an employee takes holiday during this time then they should be paid at their full normal rate of pay.

For employees who have variable hours and pay this rate is calculated using the average of the last 52 weeks – if after the 6th April 2020 – prior to this the calculation was the last 12 weeks.

Therefore if you are paying staff less than 100% in the furlough period you would need to ensure that you top up the pay if the employee takes holiday.

An employee can cancel a period of leave that is booked, with your agreement

If an employee has booked annual leave then it is likely that they will want to cancel this and reschedule for another date, particularly if they were planning to go away.

If the leave is already booked then you do not have to agree that the holiday is cancelled, in which case it would go ahead and you should pay 100% of salary.

However, from an employee relations perspective, it would be advisable to consider your position very carefully.

As yourself, is it reasonable to make an employee take two weeks of their leave entitlement in which they were planning to go away during the lock-down period?

Even if it would be permitted by law, is it fair and what will be the impact on your relationship with that employee in future?

In this situation I would try to reach some agreement with the employee, for example agree that they can cancel most of the holiday but perhaps agree that they will take a couple of days from their entitlement during this time.

Statutory annual leave can be rolled over for up to 2 years if it cannot be taken because of the current situation

The Working Time (Coronavirus) (Amendment) Regulations 2020 were brought in at the end of March 2020 to amend the Working Time Regulations 1998 so as to enable employees to carry over any untaken leave into the next year where it has not been taken due to the Coronavirus pandemic.

The leave can be carried over into the next 2 years.

The regulations state that if its was ‘not reasonably practicable’ to be taken it can be carried forward.

The new rules apply to the 4 weeks of annual leave which are the original leave entitlement provided by EU Law. In ordinary circumstances these 4 weeks cannot be carried forward.

The additional 1.6 weeks were introduced by UK law and are already covered by carry-over rules.

The total legal minimum paid annual leave in the UK is 5.6 weeks.

New rules about refusing holiday

If an employee carries over leave from this year into the next two because they have not been able to take it due to the impact of the coronavirus pandemic an employer cannot refuse a request for the employee to take that leave on a particular day (as they can with other leave with the correct notice) unless they have a ‘good reason’ to do so.

Ordinarily an employer need not give a reason for the refusal but if it involves this years carried over leave a ‘good reason’ will be needed.

Unhelpfully ‘good reason’ is not defined so if this issue arises in the future you should seek advice.

The unknowns! 

Can you, the employer, stipulate that holiday must be taken on a particular date during furlough leave? 

This is where employment lawyers opinions start to differ.

• Yes

In ordinary circumstances employers can give notice to employees to take holiday at a particular time they stipulate.

The terms for this are either contained in employee contracts or in a holiday procedure or policy.

If there is no contractual provision or policy, the Working Time Regulations apply and this states that an employer can stipulate holiday is taken if they give notice which is double the time of the holiday to be taken. For example an employer wants an employee to take 2 days holiday on a particular date they must give 4 days notice.

Contracts also often state that holiday must be taken on bank holidays, Christmas or in periods of time when the business is shut.

Certain professions such as teachers are also required to only take holiday during specific times.

It is for this reason that many lawyers believe that employers can, if they follow the correct notice procedures, stipulate that employees must take holiday during a furlough period.

• No

The reason that EU law introduced a minimum period of annual leave is to ensure that employees and workers get a legal minimum period of rest. Arguably given the current restrictions and situation that we are all facing this period of rest and relaxation is not possible and therefore to state that an employee must take holiday whilst furloughed would be contrary to the purpose of annual leave.

I am not sure about this argument as those who are continuing to work, either in the workplace or at home, are in the same position if they are told to take holiday by their employer, they cannot have a period of rest and relaxation in the same way because of the lock down conditions, but one would assume the ‘normal’ rules (as described above) apply, and an employee who is not furloughed can be told to take holiday during this time.

A possibly more convincing argument is the fact that the government have extended the right to carry over annual leave for two years, this, it has been argued is an indicator that the policy on this is that employees should be able to take leave at some time in the future rather than during the current crisis.

Conclusion

I suspect that this question will not be resolved until a claim is made by an unhappy member of staff who has been made to take holiday during the furlough period. Therefore if you take the decision to stipulate holiday during the furlough time you run the risk of a potential claim being made against you by aggrieved staff in the future.

What should you do? 

My recommendation is to weigh up what you are trying to achieve and what your concerns are about staff holidays verses the legal risks, but also keeping in mind the commercial risk/cost, reputation risk and risk in terms of future relations with staff.

I am happy to discuss this with you further and will of course update this guidance if/when things change.

Can a zero hours employee accrue holiday during the furlough period? 

This is another tricky question which cannot be answered simply.

Following a case last year, it is likely that a zero hours employee who is a permanent member of staff would continue to accrue entitlement to holiday during the furlough period.

Those zero hour employees who are temporary or seasonal may not accrue holiday during the furlough period.

If you have zero hours employees who are furloughed I strongly recommend that you seek advice before making any decisions. Please give me a call and I would be happy to talk through the options 01983 897003, 023 8098 2006 or 020 3470 0007.

Employer Concerns and questions

1. I am worried that staff will have accrued a lot of holiday and there will not be enough time for them all to take it once we are operational again. 

Employees can now carry over leave into the next two leave years so you can spread the leave over the remainder of this year and the next two to deal with this issue.

2. What if I make redundancies do I have to pay all of the accrued holiday? 

Yes, if on termination of employment there is holiday accrued but not taken you would have to pay in lieu or you can stipulate that it must be taken in the notice period. This may be contained in your contracts or policy or you can give double the notice for the employee to take it at a particular time (i.e. during the notice period).

Of course if the employee is still furloughed then you would have to consider the risks that you are unable to tell an employee to take holiday during the furlough period.

3. We cannot afford all of the holiday that staff will have? 

This is of course a problem that many employers will face. If the employee continues their employment with you after the furlough period then leave can of course be carried over and spread over future years, thereby spreading the cost burden.

It may be that you weigh up the possible legal consequences against the costs and what you can afford and therefore take the risk and stipulate that holiday must be taken in the furlough period – noting that it could result in a future claim.

If you do stipulate that holiday must be taken in the furlough you can reduce the legal risk (in my view) by:

1. Only stating that they must take holiday that has accrued in this time e.g. if they accrue 2 days per month that they take 2 days per month on furlough.
2. Paying full pay for the holiday time that you have stipulated.

4. How do I work out what has accrued for the furlough period? 

Holiday entitlement will be set out in the employees contract or terms of employment and is calculated in the same way during the furlough period as when they are normally at work.

If the employee is employed on a zero hour contract then you should seek advice about your particular business.

5. Can I tell staff that they must take the bank holidays as part of their normal holiday – this is what normally happens when we close. 

As above, acknowledging that there is some risk (if in future it is decided that employees cannot be made to take holiday during the furlough period), then you can continue as normal but ensure that full pay is paid for the bank holiday days.

Alternatively you may decide that you will not take the bank holidays from the employees entitlement and instead roll them forward to be used by the employee when they return to work.

Some options/ideas for employers to consider

1. If you offer enhanced holiday entitlement – over the legal minimum 5.6 weeks – then, as long as your contracts or holiday policy permit, you are at a lower risk by stipulating that this additional leave must be taken during the furlough period.

2. If you are concerned about the amount of holiday that is accrued and left at the end of the furlough period you could agree with the employee to pay them in lieu of any enhanced contractual holiday entitlement. E.g if you provide 6.6 weeks for staff you could agree with them to pay 1 week in lieu instead of them taking it.

3. Keep in mind the impact on staff of what has been happening, and your obligations in terms of their health, safety and well-being. It may be that staff are in need of a restful break after this period of lock-down and therefore restricting or reducing holiday mat have a negative impact on them in future.

4. Do not forget the principles of being a fair and reasonable employer. There are of course undoubtedly various pressures on you and the business, but do no rush to a decision that may impact on future relationships with employees.

There are of course legal risks but in my view the most important factors for you to consider at this time are:

• Staff health and well-being
• Your business reputation
• Future engagement and loyalty of staff.

If you have any other questions please let me know: alison@realemploymentlawadvice.co.uk or for a free initial telephone call contact the office on 01983 897003, 023 8098 2006, 01722 653001 or 020 3470 0007.

Would you like advice about your situation?

Appointments are available on the telephone or via Skype no matter where you are based throughout the UK we can help you.

The information contained in this blog post is provided for guidance and is a snapshot of the law at the time it is written. It is provided for your information only and should not be used as a substitute for obtaining legal advice that it specific to your particular circumstances.

The guidance should not be relied upon in any decision making process. It is strongly recommended that you seek advice before taking action.