Holidaying at Home – Confirmation of annual leave treatment under the Job Retention Scheme

Holidaying at Home – Confirmation of annual leave treatment under the Job Retention Scheme

Key Contact – Claire Knowles

Author – Rebecca Mahon

We reported towards the end of the day on Friday that the Coronavirus Job Retention Scheme, or “furlough” scheme, would be extended to 30th June 2020. Just as we thought there would be no further developments last week the long-awaited news that furlough leave and holiday can run concurrently was finally announced.

At the time of writing, it is only the guidance for employees that has been updated. It now has a specific section on “holiday pay” and says very clearly “you can take holiday whilst on furlough”. We are expecting the guidance for employers to be updated imminently. The new guidance for employees confirms that if holiday is taken during furlough leave it must be paid at the normal rate of pay – as in, 100% of “normal remuneration”, in accordance with the usual rules for calculating holiday pay. This means if employers want their employees to take holiday/allow their employees to take holiday during furlough leave they will need to top up those employees’ salaries to 100% of normal pay. Those of you who have been following our guidance will hopefully have already taken the likelihood of this ‘top-up’ amount into consideration.

We also now have clarity on how bank holidays are to be treated though I dare say it would have been preferable for businesses to have this information before Easter. Employees are entitled to 5.6 weeks of statutory paid annual leave which includes bank holidays. As such bank holidays will need to be treated as any other holiday and pay will need to be ‘topped-up’ to 100% if taken. Alternatively, employers can avoid this by granting the employee a day of holiday in lieu of the bank holiday. This allows the employer to avoid the additional 20% expense in the short term. However, it will mean that the employee has greater holiday entitlement to take at a later date, potentially at a greater cost to the company if taken after the employee returns to work.

If the employee usually works on bank holidays then this will be treated as any other day of furlough leave because the employee’s annual leave entitlement is satisfied at other times throughout the year. For completeness the government have also confirmed that, while annual leave will continue to accrue during a period of furlough, employers are free to vary this entitlement by agreement with the employee provided the variation complies with statutory minimums. This should be included in the furlough agreement for employees yet to be furloughed and can be set out in a separate agreement for those who have already been placed on furlough leave. Our employment team can assist with this.

What remains unclear is whether employers can require employees to take holiday during furlough leave. The position under the Working Time Regulations 1998 is that employers can require employees to take holiday provided that they give their employees at least twice as long as the period of holiday that they are requesting the employee to take as a notice. So, if an employer wanted an employee to take one week’s holiday, they would need to give them two weeks’ notice. Given that holiday continues to accrue whilst an employee is on furlough leave, it would indeed be welcome news to employers if they could ask employees to take some of their holiday entitlement whilst they are off work in any event. Otherwise there is a risk that employees will come back from a period of furlough leave with a large amount of holiday to take during the remaining months of the year, and with the ability to carry this holiday over for up to 2 years as a result of the Working Time (Coronavirus) (Amendment) Regulations 2020.

This is an ever-changing area of law and we expect further guidance to be provided at any time. Caution should be exercised when applying these principles in practice especially as HMRC have stated they are “keeping the policy on holiday pay during furlough under review”. We will publish further guidance on this point as and when it becomes available but in the meantime, please feel free to contact our employment department if you have any questions on the Coronavirus Job Retention Scheme, annual leave, or any other matters related to COVID-19.

For more information, please contact our employment team.

Claire Knowles – Partner

Mark Alaszewski – Associate

Rebecca Mahon – Solicitor

Adam McGlynn – Trainee Solicitor

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