Holiday and Furlough

Posted On: 11th May 2020

On Friday 17 April 2020, the Government yet again amended their Guidance ‘Check if your employer can use the Coronavirus Job Retention Scheme’ to include some clarification on the long awaiting issue of the relationship between holiday and furlough.

We already suspected that holiday would continue to accrue during furlough leave and the Guidance has confirmed this.

As a minimum most employees will be entitled to 5.6 weeks holiday per year.

It has been confirmed that an employee can take holiday during furlough and that therefore any holiday during furlough leave does not break the 3 week minimum furlough period. An employee should receive pay at their normal rate of pay or calculated on an average of pay received in the preceding 52 working weeks where pay varies.

Essentially, this means that employees should be paid 100% of their normal pay for any period of holiday during furlough leave. So, if you are entitled to claim the whole amount of the employees earnings through the CJRS because they earn less than £37500 per annum (£37500/12 *90% = £2500 – max amount you can claim under the scheme) you will have to top up the holiday pay to 100% by calculating their daily / hourly rate and making sure that this is put through on payroll at 100% with the remaining days/ hours being put through at 80% (subject to the employee agreeing to furlough etc). Therefore, the amount the employee gets paid on payroll will differ from the amount you can claim for that employee through the grant scheme. Essentially, an employer will be paying 20% in these circumstances from their own pocket.

If an employer is unable to afford the 20% top up for annual leave then the annual leave will have to be cancelled (even retrospectively) to be used at a later date. Employers will have the flexibility to restrict when leave can be taken if there is a business need. This applies for both the furlough period and the recovery period.

What about Bank Holidays? If the employee usually work bank holidays then the employer can agree that this is included in the grant payment. If the employee usually take the bank holiday as leave then the employer would either have to top up the employees pay to usual holiday pay, or give the employee a day of holiday in lieu.

It is suggested that if you can afford to pay the 20% top up of the holiday pay then you should refrain from cancelling leave. Cancelling leave will mean that any employees unused holiday accrual will increase during the furlough period and may be difficult to manage once the employees return to work. If you have already processed payroll for April, you should make an adjustment for any March or April employee holiday that has not already been paid at 100%.

And, although there is the facility to roll 4 weeks, there is criteria to meet to put this into practice and it may not be as straight forward as it sounds. Furthermore, by carrying over 4 weeks, the issue of employee taking leave (which can be difficult to manage at the best of time) only gets more difficult. Maybe think about a pro rata approach for the period of furlough?

https://www.gov.uk/government/news/rules-on-carrying-over-annual-leave-to-be-relaxed-to-support-key-industries-during-covid-19