Guidance on holiday entitlement and pay during coronavirus (COVID-19)

Last week the government published guidance on holiday entitlement and pay during the COVID-19 pandemic, particularly in relation to furloughed staff.

The guidance outlines how holiday entitlement and pay operates and it is designed to help employers understand their legal obligations in terms of workers who continue to work and workers who have been placed on furlough leave. It is worth mentioning at this point that while this is official government guidance, there is a dissenting legal opinion circulating which questions whether the government’s position in relation to holiday pay and furlough leave is compatible with established EU case law principles.

The guidance covers several topics including the accrual of annual leave, ability to take holiday during furlough, the rate of holiday pay and the right to carry forward leave that could not be taken because of COVID-19 as introduced by The Working Time (Coronavirus) (Amendment) Regulations 2020. We have summarised the key aspects of the guidance below:

• Under the Working Time Regulations, every worker in the UK is entitled to 5.6 weeks’ statutory annual leave. This combines the 4 weeks holiday entitlement derived from EU law, and an additional 1.6 weeks under UK law. In addition, many employers offer enhanced holiday entitlement, known as contractual holiday entitlement. Workers who have been placed on furlough leave continue to accrue both statutory holiday entitlements and any additional holiday provided for under their contract of employment.
• Furloughed workers can take holiday without disrupting their period of furlough leave.
• The notice requirements for an employer to require a worker to take leave or to refuse a request for leave continue to apply. In accordance with the WTR an employer must give double the length of the holiday as notice if the employer wishes to force a worker to take holiday on particular days. An employer must give notice equal to 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.
• If an employer requires a worker to take holiday while on furlough, the employer should consider any restrictions the worker is under such as the need to socially distance or self-isolate that prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.
• Where a bank holiday falls within a worker’s period of furlough and the worker would have usually worked the bank holiday, their furlough leave will be unaffected.
• Where a bank holiday falls within a worker’s period of furlough and the worker would usually have had the bank holiday as annual leave there are two options. Firstly, the employer and worker can agree that the bank holiday will be taken as annual leave while on furlough and the employer must pay holiday pay at the full rate of pay. Alternatively, the employer and worker can agree that the bank holiday will not be taken as annual leave on the bank holiday and that it will instead be deferred until a later date.
• Holiday pay during furlough must be the correct amount of holiday pay in accordance with current legislation, which is based on “normal remuneration”. Where this is calculated above the furlough rate of pay, the employer will have to “top up” the difference to ensure that the worker receives 100% of their normal remuneration for any period of holiday, but the employer will still be able to claim up to 80% (or £2,500 per month) under the CJRS. However, another topic of debate amongst employment lawyers at present is whether holiday pay should be based on pre-furlough or furlough pay rates, particularly for employees who have set hours and pay. Paying at furlough rate only will potentially carry a risk of future claims for unlawful deduction of wages and obviously disincentivise employees from wanting to take holiday during a period of furlough and so employers may decide that the less risky option is to simply “top up” all holiday pay.
• The right to carry 4 weeks of the statutory holiday into future leave years in certain circumstances (such as a worker being on maternity leave or sick leave) remains unaffected by a worker being on furlough leave.

When considering whether it was not “reasonable practicable” for a worker to take leave as a result of COVID-19, so that they may carry untaken holiday into future leave years (pursuant to The Working Time (Coronavirus) (Amendment) Regulations 2020), an employer should take the following factors into account:

1. whether the business has faced a significant increase in demand due to COVID-19 that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures;
2. the extent to which the business’ workforce is disrupted by COVID-19 and the practical options available to the business to provide temporary cover of essential activities;
3. the health of the worker and how soon they need to take a period of rest and relaxation;
4. the length of time remaining in the worker’s leave yer, to enable the worker to take holiday at a later date within the leave year;
5. the extent to which the worker taking leave would impact on wider society’s response to, and recover from COVID-19; and
6. the ability of the remainder of the available workforce to provide cover for the worker going on leave.

• The guidance specifically states that workers who are on furlough are “unlikely to need to carry forward statutory annual leave as they will be able to take it during the furlough period”. This appears to suggest that the government does not consider that many workers on furlough will be “prevented” from being able to benefit from resting, relaxing and enjoying leisure time due to the general restriction on society as a whole. It is this that may be particularly susceptible to challenge under existing EU law. However, if an employer is unable to fund the difference to ensure that workers on furlough are paid the correct holiday pay, it is likely that this would make it not reasonably practicable for the worker to take their leave. In these circumstances, the worker would be able to carry their annual leave forwards.
• When a worker carries leave forwards due to COVID-19, they will continue to accrue holiday in the next leave year too. This means that workers will effectively have two entitlements which will consist of the holiday that has been carried forward because of COVID 19, which must be taken in the next 2 leave years and the entitlement that relates to the new leave year. It is generally best practice to allow the worker to take holiday from the entitlement that expires first, but there are circumstances where employers may wish to take a different approach.
• Carried over leave is still subject to the usual rules around payment in lieu. An employer must facilitate the worker taking their annual leave not replace it with a financial payment. Payments in lieu of untaken holiday entitlement should only be made on the termination of employment.

Although this guidance is helpful, it is important to note that it has no legal effect and tribunals will not be required to follow it when deciding future working time and holiday pay cases.

For further advice on any of the changes outlined above or on Covid-19 Coronavirus related employment queries please contact our Employment and HR Services team.