On 13 May 2020, the Department for Business, Energy & Industrial Strategy (BEIS) published new guidance, 'Holiday entitlement and pay during coronavirus (COVID-19)'.
The new guidance is intended to be an explanation of how holiday entitlement and pay operate during the coronavirus pandemic, particularly for workers furloughed under the Coronavirus Job Retention Scheme (CJRS).
The new Guidance makes it clear that:
- Workers on furlough continue to accrue holiday while on furlough
- Workers on furlough can take holiday without disrupting their furlough
- Employers can require workers to take holiday and cancel a worker's holiday if they give enough notice to the worker (including bank holidays). This may include workers on furlough but "the employer should consider whether any restrictions the [furloughed] worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday"
- The normal rules on calculating holiday pay under the Working Time Regulations 1998 (WTR) continue to apply
Guidance is also provided on:
- The new legislative provisions on carrying forward leave providing examples of when it might not be reasonably practicable to take holiday as a result of the coronavirus
- Holiday and furloughed agency workers
BEIS Guidance is welcome but it is important to note that BEIS Guidance is simply that - guidance. It has no legal force and is not binding on employment tribunals or the courts. As such specialist advice may be needed.
Here we consider the new guidance in detail.
Under the WTR, every worker is entitled to 5.6 weeks' statutory annual leave split into 4 weeks derived from EU law, and an additional 1.6 weeks from UK law. Many workers have contracts that entitle them to additional paid holiday beyond this, known as contractual holiday entitlement.
The Guidance confirms, as expected, that workers including those on furlough, continue to accrue statutory holiday entitlements, and any additional holiday provided for under their employment contract (which should have been varied by a furlough agreement).
Normal rules apply
The Guidance reminds that the normal rules on the taking of holiday leave continue to apply including the ability of the employer to:
- refuse permission for leave to be taken on particular days (including cancelling booked holiday) provided they give notice which is at least as long as the holiday requested and so long as this does not effectively prevent the worker from taking holiday at all (in other words allow rescheduling at a later time in the leave year);
- set the times that workers take their leave, for example for an annual shutdown (exceptions exist for family related leave/sickness absence situations).
Special considerations for furloughed workers?
Regarding workers on furlough, the Guidance states they can take holiday without disrupting their furlough. It goes on to advise that employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so. It also suggests that if an employer requires a worker to take holiday while on furlough, "the employer should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday". (Our emphasis).
What the Guidance does not provide is a clear view on whether holiday taken during furlough meets the definition of annual leave set down in European law, reflected in the words underlined above. Also, to what extent the employer is required to consider whether a furloughed worker is 'prevented' from taking holiday is unclear. Later, in the 'Carrying annual leave into future leave years' section of the Guidance, it states "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 suggests that BEIS 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.
The 2009 increase in statutory holiday entitlement from 4 weeks to 5.6 weeks is the equivalent to 20 days plus the 8 existing bank holidays for full time workers. However, it remains the position that workers do not have a statutory right to take holiday actually on a bank holiday. Accordingly, employers can include bank holidays as part of a worker's statutory holiday entitlement if they choose, but do not have to do so.
Where necessary, employers can require workers who would usually take bank holidays as holiday to work instead, using the standard notice periods. In such a case, the worker would instead be able to take that day's holiday at another time.
The Guidance states that where a bank holiday falls inside a worker's period of furlough and the worker would have usually worked the bank holiday, their furlough will be unaffected by the bank holiday. However, if the worker would usually have had the bank holiday as annual leave, there are two options.
- The bank holiday is taken as annual leave (either by agreement or where the employer has served the required notice) without breaching furlough conditions; or
- The employer and employee can agree that the day's holiday is deferred.
The Guidance essentially says that holiday pay, whether the worker is on furlough or not, must continue to be calculated in line with the existing legislation:
"The amount of pay that a worker receives for the holiday they take depends on the number of hours they work and how they are paid for those hours. The principle is that 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 calculated in line with current legislation …, based on a worker's usual earnings. The underlying principle is that a worker should not be financially worse off through taking holiday. Where a worker has regular hours and pay, their holiday pay would be calculated based on these hours. If they have variable hours or pay, their holiday pay is calculated as an average of the previous 52-weeks of remuneration excluding weeks in which there was no remuneration."
Specifically for furloughed workers the Guidance states:
"If a worker on furlough takes annual leave, an employer must calculate and pay the correct holiday pay in accordance with current legislation ... Where this calculated rate is above the pay the worker receives while on furlough, the employer must pay the difference. However, as taking holiday does not break the furlough period, the employer can continue to claim the 80% grant from the government to cover most of the cost of holiday pay."
The HMRC's 'Work out 80% of your employees' wages to claim through the Coronavirus Job Retention Scheme' states "if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations." The new BEIS Guidance reminds that "the underlying principle is that a worker should not be financially worse off through taking holiday."
But where the employee has agreed to reduced pay, what is now 'usual pay'? UK law provides that the 5.6 weeks' holiday would be paid at whatever the contractual rate is on the first day of the holiday for someone with set hours. For a person without set hours then an average of the last 52 paid weeks is paid. Some legal commentators argue that under EU case law holiday pay must be paid at the normal full time rate, based on normal hours working. On the other hand, if the employee agrees to furlough leave with a consequential pay cut then arguably that would be the usual pay for any leave taken during the furlough period.
Whether holiday pay should be based on pre-furlough or furlough pay rates remains one of the most debated and complicated issues involving the CJRS. Paying at furlough rate will carry a risk of future claims for unlawful deduction of wages (for the underpayment of wages). Of course, those claims could be settled in the future if and when the position is clarified. A practical option for employers facing holiday requests during furlough who do not want to run the risk of such claims would be to require the employee to take the holiday later in the year when furlough has ended. However, at that point, the employer may not want employees taking material amounts of holiday as they get the business up and running again.
Carrying annual leave into future leave years
On 27 March 2020 the Government amended the WTR to allow carry forward of up to four weeks accrued holiday leave (see our earlier alert COVID-19: How Coronavirus is impacting the taking of UK holiday leave - permissible carry over).
Where it has not been reasonably practicable for the worker to take some or all of the 4 weeks' holiday due to the effects of coronavirus on the worker, the employer or the wider economy or society, the untaken amount may be carried forward into the following 2 leave years.
We now have guidance on what is reasonably practicable. The Guidance gives various relevant factors, such as:
- whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures;
- the extent to which the business' workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover for essential activities;
- the health of the worker and how soon they need to take a period of rest and relaxation;
- the length of time remaining in the worker's leave year, to enable the worker to take holiday at a later date within the leave year;
- the extent to which the worker taking leave would impact on wider society's response to, and recovery from, the coronavirus situation;
- the ability of the remainder of the available workforce to provide cover for the worker going on leave.
Employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity.
Special considerations for furloughed workers?
As referred to above, the Guidance 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. However, it goes on to state that "to do so they must be paid the correct holiday pay which is likely to be higher than the rate of pay that will be covered by government grants, with the employer making up the difference". Furthermore, "if, due to the impact of coronavirus on operations, the employer is unable to fund the difference, it is likely that this would make it not reasonably practicable for the worker to take their leave, enabling the worker to carry their annual leave forwards. In this situation, the worker must still be given the opportunity to take their annual leave, at the correct holiday pay, before the carried annual leave is lost at the end of the next 2 leave years."
Unfortunately the Government still does not provide any guidance on what is "correct holiday pay, see above.
Handling carried forward leave
The Guidance also advises that if owing to the coronavirus, a worker carries forward leave, it is generally best practice to allow the worker to take holiday from the entitlement that expires first. In practice, this means that workers should be allowed to take the holiday to which they are entitled in the new leave year before they take the 'carried' holiday, as the 'carried holiday' entitlement lasts for 2 years.
There is no statutory requirement to give workers notice that they will be able to carry holiday forward if they do not take it. However, under European case law, an employer is under a duty and must show that it had enabled the worker to exercise their holiday entitlement, particularly through the provision of sufficient information. It is therefore best practice for employers to inform workers of both the need to take holiday and their rights on carry forward.
Carried leave is still subject to the usual rules around payment in lieu. An employer must facilitate the worker taking their annual leave and not replace it with a financial payment (save on termination of employment for all accrued outstanding leave).
Furloughed agency workers
The Guidance also points out that CJRS does not alter the position as to whether or not agency workers, including those working through an umbrella company, are entitled to accrue holiday under the WTR or under their contract.