Furloughing staff – will it affect annual leave?

Government guidance to date has been silent on the subject of how furloughing staff will affect annual leave. Kate Shawcross, employment solicitor at Harrison Drury, takes a look at some common questions surrounding this.

Will holidays continue to accrue for employees who have been furloughed?

It is likely that employees will continue to accrue their statutory 5.6 weeks’ leave, while on furlough, given they remain employed. An employer who offers additional annual leave may attempt to agree with furloughed employees that the enhanced element of annual leave will not accrue during the period of furlough, although care should be taken when agreeing any variation of terms.
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Will employees who have been furloughed be able to carry-over any untaken holiday, into the next leave year?

The government has recently passed emergency legislation permitting the carryover of up to four weeks’ leave (the minimum leave entitlement prescribed under the EU’s Working Time Directive) where it was not reasonably practicable to take it in the leave year it was due, “as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)”. Under these new regulations, any such carried-over leave may be taken in the two leave years immediately following the leave year in respect of which it was due.

We consider below whether annual leave can be taken while furloughed, although, even if it cannot, in many cases it could be taken afterwards. However, there will still be furloughed employees who have been unable to take all their entitlement, either because of the way the holiday year falls as against the period of furlough leave, or because they have been ill, for example. Employers will therefore have to consider each case on its facts and determine whether the employee is entitled to carry over any outstanding annual leave under the coronavirus legislation.

Can holidays be taken during a period of furlough leave?

The government guidance is still completely silent on how holidays may affect reimbursement of wages under the CJRS. Accordingly, there is a risk that annual leave may not be treated as furlough leave and so the pay may not be recoverable. Employers should therefore also consider the impact on whether annual leave might interrupt the period of furlough. Thus, they should take into account the length of furlough vis-à-vis the length of annual leave to be taken, bearing in mind that under the CJRS, furlough needs to be for a minimum period of three weeks.

All that said, ACAS has updated its own guidance to suggest that employees may take annual leave without it interrupting the period of furlough, and we are inclined to agree with this view. Note, however, that HMRC is not obliged to follow ACAS guidance and so employers should not take this guidance at face value and should
exercise caution.

On that basis, employers may wish to consider preventing any annual leave being taken during a period of furlough. Given that it would be possible to carry such leave forward for the next two years, this would certainly be the safest option.

Can an employer require an employee to take annual leave while furloughed?

If the ACAS guidance is correct, and a period of annual leave does not interrupt a period of furlough, then it stands to reason that an employer may require employees to take annual leave at specified times. Employers should not, however, abuse the Working Time Regulations and run their employees’ holidays down during the period of furlough, but they could certainly still insist that some holiday could be taken during this period. If that is the case, the usual notice rules will apply, meaning that employers will have to give notice of a period twice the length of the period of holiday to be taken (so for a holiday of one week, an employer must give at least two weeks’ notice).

What should an employee be paid for annual leave taken while furloughed?

Assuming that holiday can be taken without impacting furlough, it is our (and indeed ACAS’s) view, that holiday pay in these circumstances should be calculated in the usual way (i.e. not reduced to reflect the temporary reduction in pay under furlough leave). The employer should be able to recover the furlough pay under the CJRS and will have to top up the balance itself. This follows the principles set out in the guidance for enhanced maternity pay, which states that where an employee is on maternity leave, any enhanced pay (i.e. over and above statutory maternity pay) provided for under the contract of employment, would fall within the CJRS and be treated as wage costs for the purposes of claiming a reimbursement.

For more information, contact Harrison Drury’s dedicated Coronavirus Legal
Support Team that can be contacted directly on 01772 349 999 or via
coronavirussupport@harrison-drury.com

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