Coronavirus: interaction between annual leave and furlough
Annual leave accrual
As the employment contract continues during furlough, annual leave still accrues. This includes the 5.6 weeks’ statutory annual leave provided by the Working Time Regulations 1998 (SI 1998/1833) (WTR) and any contractual enhancement on top of statutory entitlement.
Pro advice. You could agree with employees, in writing, to vary their contracts to remove any contractual enhancement during furlough.
Employee’s request
The HMRC guidance for employees on the Coronavirus Job Retention Scheme (CJRS) (see Follow up ), the HMRC guidance for employers on how to work out 80% of employees’ wages (see Follow up ) and Acas guidance (see Follow up ) state that employees can still request to take their annual leave, including bank holidays, in the normal way during furlough. Where you approve an employee’s request, they must be paid their usual holiday pay, as the WTR requires holiday pay to be paid at the normal rate of pay (or, where pay varies, the rate calculated by averaging over the previous 52 working weeks), i.e. you will need to top up their furlough pay to full pay for paid annual leave days.
Pro advice 1. As you can only reclaim 80% of wages, subject to the cap, under the CJRS, you would be obliged to fund the top-up payment. Alternatively, you could turn down the employee’s request but, if you do, you then risk employees returning from furlough with large annual leave balances at a time when you may want to maximise your business productivity.
Pro advice 2. The HMRC and Acas guidance isn’t binding. Somewhat ominously, the HMRC guidance says that “we are keeping the policy on holiday pay during furlough under review” .
Employer’s requirement
There’s still no clear guidance on whether you can require an employee to take their accrued annual leave, or a pro rata amount reflecting the expired portion of the holiday year, during furlough, subject to giving the required period of notice, i.e. twice as much notice as the length of leave you want them to take (unless the contract says something else about notice). However, existing case law suggests this is permissible.
Pro advice 1. If it isn’t permissible, the risk is that designated periods of annual leave break furlough and may mean you then fall foul of the rule requiring each furlough period to be a minimum of three weeks. Don’t direct employees to take annual leave before the accrual of the minimum three-week period.
Pro advice 2. The other risk is that an employment tribunal might decide this is an abuse of your statutory right to require annual leave, particularly if you’ve required an employee to use up their entire year’s entitlement while on furlough.
Pro advice 3. If, prior to furlough, employees had pre-booked annual leave dates, you can probably still require them to take those days.
Bank holidays
If bank holidays are part of the employee’s contractual annual leave entitlement, the HMRC guidance is that you can still require them to take those days as paid annual leave. If you do so, you would again need to top up payment to their usual holiday pay. The alternative is to grant a day of annual leave in lieu of the bank holiday.
Guidance for employees on the CJRS
Guidance on how to work out 80% of employees’ wages
Acas guidance on using holiday
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