Holiday entitlement and pay for furloughed workers clarified

The government has recently issued guidance on furloughed workers’ holiday entitlement and holiday pay during the coronavirus pandemic, a topic employers have long been seeking clarification on. We summarise the key points to note from the guidance.

Key points to note

• Workers continue to accrue statutory and contractual holiday (unless the employer and worker have agreed otherwise) while on furlough leave.
• Workers on furlough can take holiday without disrupting their furlough.
• Employers can require workers to take holiday or can refuse a request for leave during furlough.
• Notice requirements to either require employees to take or prevent them from taking holiday continue to apply during furlough. The required notice periods are (a) double the length of the holiday if the employer wishes to require a worker to take holiday on particular days and (b) the length of the planned holiday if the employer wishes to cancel a worker’s holiday or require the worker not to take holiday on particular dates.
• However, before requiring workers to take holiday during furlough, employers should consider if any restrictions, such as needing to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying their leisure time which is the fundamental purpose of taking holiday. If this is not possible, the worker should be allowed to take their holiday at another time (see below carry forward of holiday).
• Where workers usually work bank holidays and a bank holiday falls while they are on furlough, they will be unaffected and will simply receive their furlough pay for the bank holiday.
• For workers who are furloughed who usually take bank holidays as annual leave:
  • Employers can agree with such workers that they will take the bank holiday as annual leave and receive holiday pay for this day (which would require the employer to top up to normal pay any furlough pay received); or
  • Employers can agree with such workers that the day of annual leave due for the bank holiday can be deferred until a later date. Employers should ensure that workers who choose this option continue to receive their full holiday entitlement.
• In terms of holiday pay, the principle is that the pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work and working. Holiday pay, whether the worker is on furlough or not, should be based on a worker’s usual earnings. Employers therefore need to calculate the correct holiday pay and where this is above the pay the worker receives while on furlough, the employer must top up the worker’s pay (but can still continue to claim the 80% from the government). 

Carry forward of holiday

• In certain circumstances, employers must allow workers to carry forward four weeks of statutory holiday into future leave years. The government has introduced new regulations to allow workers to carry holiday forward where the impact of coronavirus means that it has not been reasonably practicable to take it in the leave year to which it relates. Factors to take into account in understanding what is “not reasonably practicable” for the carry forward of four weeks holiday under the Working Time (Coronavirus) (Amendment) Regulations 2020 include:whether the employer has faced an increase in demand due to coronavirus, so that it reasonably requires the worker to continue to be at work and is unable to meet the demand by alternative practical measures;
  • considering the extent the workforce has been disrupted by the coronavirus and the practical options available to provide temporary cover of essential activities;
  • the health of workers and how soon they need a period of rest and relaxation;
  • the length of time remaining in the employer’s leave year, to enable the worker to take leave later within the leave year;
  • the extent to which the worker taking leave would impact on the wider society’s response to and recovery from coronavirus; and
  • the ability of the remainder of the available workforce to provide cover for the worker on leave.

For example, if due to the impact of the coronavirus an employer is unable to fund the difference between furlough pay and holiday pay, this is likely to be a situation where it would be “not reasonably practicable” for the employee to take leave and as such can carry forward their annual leave.

Top tips for employers

• Employers should do everything reasonably practicable to ensure a worker is able to take as much of their leave as possible in the year to which it relates;
• Where holiday is carried forward, it is best practice to allow workers the opportunity to take holiday as soon as possible;
• A worker who carries over holiday into a new leave year will continue to accrue leave in that new leave year. It is best practice to allow a worker to take the holiday which expires first, that is the holiday accrued in the new leave year, as the carried over holiday can be taken at any time in the next two leave years;
• Employers need a good reason to refuse a worker from taking carried over holiday on particular dates;
• There is no requirement to notify workers that they can carry forward holiday but it is best practice for employers to do so and to identify how much leave will be carried forward;
• Normal rules around payment in lieu of holiday apply to carried forward holiday on the termination of employment.

Agency workers

Holiday rights for agency workers remain unchanged while they are on furlough. Therefore, an agency worker will continue to accrue holiday while on furlough as they would normally when between or otherwise not working on assignments.

For those agency workers on a contract for services who are not entitled to accrue or take holiday, as they are not treated as workers when between or otherwise not working on assignments – their contract should be checked as it may contain holiday provisions which continue to operate during the furlough period.

Agency workers who have worker status can take holiday they are entitled to whilst on furlough.

The guidance also states that agency workers may be able to carry holiday into future leave years. However, the wording suggests that this is covered in more detail in a later section but in fact no further detail is provided on this point. It is therefore not clear exactly what rules apply in respect of carry over for agency workers although this would presumably be the same as for other workers as set out above.

As the coronavirus situation is rapidly evolving, our advice may change in light of government announcements and on-going developments; please consult our Coronavirus COVID-19 hub for our latest thinking.