Covid-19 Further Update: Guidance on Holiday Pay (15 May 2020)

HMRC have issued Guidance on taking holidays and the payment of holiday pay while employees are on furlough leave under the Coronavirus Job Retention Scheme. The new guidance can be found here:-

https://www.gov.uk/guidance/holiday-entitlement-and-pay-during-coronavirus-covid-19?utm_source=458b84c0-5181-43ea-9d13-fd803529f23d&utm_medium=email&utm_campaign=govuk-notifications&utm_content=immediate#taking-holiday

Before the introduction of the CRJS the cost of workers taking their holiday was generally spread throughout the holiday year. With “lockdown”, individuals cannot in practical terms go away on holiday and understandably are therefore reluctant to take holiday during furlough leave. This however is storing up a problem for employers when businesses get up and running again. Workers are likely to have accumulated substantial untaken leave, four weeks of which can of course be carried forward over the next two holiday year periods if they cannot take the holiday due to Coronavirus.

Until now it has been unclear how the usual rules on holidays apply to those on furlough leave, and in particular whether employers who compel their employees to take holidays while on furlough leave would continue to receive the Government grant. The good news is that the Guidance does provide some clarity in relation to the interaction of annual leave with furlough leave, but sadly there are still some areas of grey.

Here is a summary of the key points:-

• Furloughed workers will continue to accrue both statutory holiday entitlements (5.6 weeks per year for a full-time worker), and any additional holiday provided under their contracts. This has been confirmed in previous Guidance issued to employees but not the guidance issued to employers;

• Workers on furlough leave can take holiday without disrupting their furlough leave. Importantly, the Guidance also confirms that employers can require furloughed workers to take holiday at a specified time and can also cancel the workers’ holiday, provided in each case they give the required notice to the worker in accordance with the Working Time Regulations. That is a period of notice equivalent to twice the length of the holiday either being required or being requested;

• The new Guidance contains a provision which could prove problematic which reads:-

“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 fundamental to the purpose of holiday.”

Just what does that mean? The entire UK is currently on “lockdown” and socially distancing. Does that mean in fact none of us can properly take holiday anyway? And since when has it been the law that a holiday must be restful, relaxing or (least of all) enjoyable? Even if someone is on furlough leave, they have the opportunity to rest and relax, so are we then just considering whether an employee compelled to take leave at a particular time would enjoy it? The obvious answer to that, when he has nowhere to go, no-one to see and nothing to do, is “not particularly”. But once the employer has reached this completely inevitable conclusion then what? Is it then prevented from requiring the employee to take leave? We do not think that can be right. It is likely that further guidance on this issue will be produced. For now, however, when requiring individuals to take holiday, employers should be seen (and we recommend therefore keeping a note of this exercise) to consider whether anything in their particular circumstances during this pandemic might mean they are prevented from resting, relaxing and enjoying leisure time. A blanket approach requiring all furloughed employees to take a certain period of their accrued leave will probably now generate grievances and possibly claims and so employers will need, as a minimum, to be willing to reconsider such instructions in cases of individual particular hardship, however hard they may be to imagine at this stage.

Our current thinking is that the issues we all face due to social distancing, such as not seeing our family or be able to go on holiday would not be enough to thwart the fundamental purpose of holiday for most people. And actually this seems to be the Government’s view as the guidance simultaneously confirms that workers who are on furlough leave are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period. Clear as mud!

• As we expected the Guidance confirms that holiday pay for furloughed workers should be calculated in line with current legislation and based on usual earnings i.e. the worker must receive 100% of their usual pay. Given that only up to 80% will be covered by the Scheme, the employer will be obliged to top up the rest. This should at least sweeten the pill for employees required to take holidays which they would rather have saved up.

• The Guidance confirms that if a furloughed worker would usually have had the Bank holiday as annual leave, there are two options:-

 If the employer and the worker agree that the Bank holiday can be taken as annual leave while on furlough the employer must pay the correct holiday pay for the worker; or

 If the employer and the worker agree that the Bank holiday will not be taken as annual leave at that time the worker will still receive the day of annual leave they would have received. The holiday can be deferred until a later date, but the worker should still receive their full holiday entitlement.

• The Guidance provides more information around when it will not be reasonably practicable for workers to take holiday due to Coronavirus in accordance with the new laws. An employer should consider various factors such as:-

 Whether the business has faced a significant increase in demand due to Coronavirus that reasonably requires the worker to continue to be at work and cannot be met through alternative measures;

 The extent to which the business’ workforce is disrupted by the virus and the options available to the business to provide temporary cover for essential activities;

 The health of the worker and how soon they need to take a period of rest and relaxation;

 Whether there is time left in the worker’s leave year to enable them to take holiday at a later date within that same year;

 The extent to which the worker taking leave would impact on wider society’s response to, and recovery from the Coronavirus situation;

 The ability of the remainder of the workforce to provide cover for the worker going on leave.

• 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.

• Importantly, the Guidance also confirms that, if due to the impact of Coronavirus on operations the employer is unable to fund the difference between furlough pay and 100% of pay a worker is entitled to receive for holiday days, it is likely that this would mean that it was not reasonably practicable for the worker to take their leave enabling the worker to carry their leave forward.

• Carried leave is still subject to the usual rules around payment in lieu. An employer must facilitate the worker taking their annual leave and cannot replace it with financial payment except on termination.

All of this leaves employers with some difficult decisions to make. Should they require workers to take holiday during furlough to avoid a glut of accrual, or is the cost of topping it up to 100% pay too much of a burden to bear at this point in the crisis? If they don’t spread the cost across this year, does the employer have to gamble that the business will pick up sufficiently during the next year to be able to deal with the amount of holiday workers have carried forward?

Unfortunately, there are no easy answers. However at least employers will now be able to plan their approach based on something which is perhaps a little closer to certainty.

Please remember that we at WJM are here to help during this exceptionally difficult time, please don't hesitate to get in touch if there is anything you think we can help with.

For any advice in relation to any particular aspects of the above, please contact a member of the Wright, Johnston & Mackenzie Employment team: Liam Entwistle (lae@wjm.co.uk), Martin Stephen (mss@wjm.co.uk), Andrew Wilson (ajpw@wjm.co.uk) and John Grant (jg@wjm.co.uk)