Furlough and annual leave – an update for employers

The Government has now updated its guidance for employees on taking annual leave whilst they are furloughed and how much they should be paid. However, confusingly, the Government’s guide for employers has not been updated on this issue and it is not clear why.

In our recent Furlough FAQs article we explained that annual leave will continue to accrue during furlough, due to the employment relationship continuing.

The Government’s latest guidance for employees sets out that in keeping with the Working Time Regulations, employees should be paid for any holiday taken at their normal rate of pay or, if their pay varies, on the basis of the average pay that they have received over the last 52 weeks in which they worked.

What this means is that you will be obliged to pay your furloughed employees who take annual leave a top up over and above the 80% of their salary that you are able to claim from the Government.

This is as we anticipated in our FAQ article and is also consistent with the ACAS guidance on the topic.

In relation to bank holidays, the guidance now states that if an employee usually works bank holidays, then the employer can agree that this is included in the 80% payment. If an employee usually takes bank holidays as leave, the guidance says that their employer would either have to top up their pay to their usual holiday pay or give them a day of holiday in lieu.

Restricting holiday

The guidance also states that 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.”

Unfortunately, this is not explained further. If an employee is furloughed, then it stands to reason that you cannot turn down their holiday request because you need them to work! However, there could be an argument that you need to have the ability to recall the employee from furlough, perhaps if work picks up, or to cover the duties of colleagues who have become ill or need to self-isolate. This might amount to a business need not to allow lengthy periods of annual leave to be taken, rather than the odd day. This could also be a reason to limit how many employees can book annual leave in the same time period. There might also be an argument that you cannot afford to top up the wages of staff to 100% and for that reason, you will not allow annual leave to be taken whilst an employee is on furlough.

As we discussed in our previous article here, employees will be allowed to carry over some of their untaken leave into the next 2 annual leave years, where it has ‘not been reasonably practical’ for them to take it due to the coronavirus. It is not yet clear what this means.

Insisting upon holiday

There is no mention within the guidance as to whether you can compel employees to take holiday whilst they are on furlough. You might want to be able to do this, as otherwise you could end up with staff returning from furlough with a lot of annual leave to use up in the remainder of your holiday year. The general position is that you can tell employees to take holiday, provided you give them at least twice as much notice as the amount of time you want them to take off. For example, if you wanted them to take one day off, you would have to tell them at least two days beforehand. However, it is best for employers to take advice if they are thinking of forcing employees to take their holiday in the current situation.

If employees want to cancel pre-booked leave

The guidance is also silent on what the position will be if employees want to cancel annual leave that they booked before going on furlough, or indeed before anyone was aware of the coronavirus pandemic. With hotels being closed and various travel restrictions in place, a lot of holidays are going to be cancelled or postponed. Employers can accept or refuse requests to cancel or change the dates of pre-booked annual leave if they wish, but they are not under any obligation to do so. However, the decisions you take on this do need to be fair and consistent between employees to avoid accusations of unfair treatment or discrimination. The decision on this is likely to come down to what is best for your business and it would be a good idea for you to communicate the reasons for your decisions in writing to your employees.

If you want to cancel any leave previously booked by an employee, then you need to give them at least as many days’ notice as the period due to be taken as annual leave. So, if an employee has 10 days booked off, you need to tell them at least 10 days before of the first day of their holiday. Again, it would be sensible to explain in writing why you are doing this.

Points to note

It is important to note that the Government guidance specifically states that:

“during this unprecedented time, we are keeping the policy on holiday pay during furlough under review.”

Perhaps this is partly because it is not yet known how long the overall “furlough period” will last. The Government confirmed last week that the furlough scheme is being extended until the end of June 2020 – although it is possible that it may also be extended further depending on how things are going by then.

The reference within the guidance to the “recovery period” (see the quote under ‘Restricting Holiday’ above) is intriguing and it will be interesting to see whether this will be a new coronavirus-related phrase for us all to get to grips with once the measures for lifting some of the lockdown restrictions are announced. We expect that the Government will be keen to get workplaces back up and running as soon as it is safe to do so, and this may come with further guidance on restricting employees’ holiday to assist with productivity.

Now that the guidance has been updated, it may be a good idea for you to set out in writing (email is fine for this purpose) what the position will be in relation to annual leave for your furloughed employees. However, whether to do this at this stage may be a judgement call depending on the particular situation with your workforce. We can assist with drafting letters to furloughed employees and if you need help with this, please get in touch.