Latest furlough and holiday pay guidance – what has it cleared up?

The government has clarified issues relating to furlough and holiday pay in guidance published yesterday (13 May) by the Department for Business Energy and Industrial Strategy. While it was confirmed last month that furloughed workers could take annual leave without breaking furlough, many questions remained regarding whether an employer could require staff to take holiday, and the status of temporary and agency staff was also still unclear. While the new guidance has offered clarification on a number of questions, Peter Nicholson, associate employment law solicitor at Nelsons, pointed out that "strictly speaking, the new guidance has no legal effect".

"Employment tribunals will not be obliged to follow it when deciding cases about holiday pay," he explained. "However, it is very significant for employers because it goes further, and into more detail, than any previous guidance on this subject." So what does the latest guidance advise?

Accruing annual leave

The new guidance has confirmed that workers placed on furlough continue to accrue statutory holiday entitlements and any additional holiday provided for under their employment contract. The guidance also confirmed that the job retention scheme does not change whether agency workers accrue holiday.

In either case furlough should be treated as time between contracts, and those that do normally accrue or are able to take holiday during this period - either through the Working Time Regulations or through their contractual agreements - continue to do so. There is no new entitlement for agency workers not normally entitled to holiday entitlements between contracts.  The updated guidance was welcomed by Neil Carberry, chief executive of the Recruitment and Employment Confederation. "Hopefully [this will] remove the huge cost barrier to higher rates of furlough that many agencies faced before now," he said.

Requiring workers to take annual leave

While previous guidance made clear that furloughed employees could take annual leave without breaking furlough, questions still remained about whether an employer could oblige workers on furlough to take holiday during this period.

The government guidelines now state employers can require staff to take annual leave while they are furloughed, subject to usual statutory notice periods. However, the guidance advised businesses to "engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so." Alan Price, CEO at BrightHR, said while employers would be pleased to receive clarification on this issue, the new rules may not be as straightforward as they seemed. "The guidance goes on to say that employers should consider whether the aim of annual leave (rest and relaxation) is met if someone takes annual leave during furlough," he said.

However, Kathryn Casey-Evans, head of employment and immigration at Trethowans, said it was unlikely a furloughed employee would be able to prove they were unable to take annual leave for this purpose during the crisis. "Is the impact of [lockdown] and essentially not being able to do what you want to do really not going to allow you to have that rest and relaxation?" she said. "I think that is going to be a very difficult push for an employee to be honest."

Subsidising holiday pay with furlough funding

The guidance clarified that employers can claim through the job retention scheme for furloughed workers even while they were taking holiday. But they are required to make the difference up if the employee is entitled to higher holiday pay than their furlough pay, it said. Nicholson said this update brought increased flexibility for employers and would allow them to ensure furloughed workers did not return to work with excessive amounts of annual leave.

It was also good news for employers that leave on furlough would be in part subsidised by the job retention scheme, he said. But he added that the new rules came with a health warning. "Employers should not see this as an opportunity to deplete furloughed employees' holiday," he warned. "As with everything at this exceptional time, the issue of furloughed employees' holiday needs to be dealt with carefully and, ideally, in consultation with those concerned."

Bank holidays 

For furloughed workers who would usually take bank holidays as annual leave, the guidance sets out two options. Employees can either take the bank holiday as annual leave, and be remunerated as agreed in their employment contract, or bank holiday can be deferred if this arrangement is agreed between the employer and worker.

Carry-over holiday days

The government has passed new emergency legislation allowing workers to carry forward for two years any holiday they were unable to take this year due to the coronavirus crisis.

However, Casey-Evans said this provision was unlikely to apply to furloughed workers, and was designed to help those unable to take leave due to working on the front line. "By virtue of the fact that you can take annual leave on furlough, provided the employer manages that appropriately, there's no reason why you wouldn't be able to take it [in the allotted leave year]," she said.

Price added that employers were not obliged to allow this carry-over provision. "There will be no one-size-fits-all rule when deciding whether leave can be carried over to the next two leave years, and employers may need to take an individual approach considering employees' circumstances," he said.

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