Managing annual leave during COVID

Annual leave can be a messy and complex part of employment law. With the furlough scheme being extended to the end of September 2021¹, holidays have become even more complicated for business owners. We answer some of the most pressing questions employers have about how annual leave interacts with furlough.

Do holidays continue to accrue during furlough?

Yes, employees placed on furlough continue to accrue statutory holiday entitlements, as well as any additional holiday provided under their employment contract, together known as ‘contractual holidays’.

A general note on holidays: HMRC have stressed in their guidance that nothing about the furlough scheme changes your employment law obligations.²

How do I treat holidays when making a furlough claim?

Holidays do not break furlough periods. Where an employee is already on furlough, you can claim furlough pay for any holiday weeks. For example if an employee was furlough for the first three weeks in March, but has a holiday booked for the second week in March, the employer’s claim would cover the entire three week period. They can be claims as normal working days. You can’t put people on furlough just to cover holiday when they weren’t genuinely on furlough.

Where the employee is flexibly furlough, holidays are treated as usual working hours. For example, an employee works Monday and Tuesday, is furloughed on Wednesday and has a holiday booked on Thursday and Friday. The flexible furlough claim will be based on three days (their usual hours of days, minus the two days they worked).

How do I calculate holiday pay for furloughed staff?

When your people are on holiday, the pay they receive must reflect what they would have received if they had worked – otherwise it would be a deterrent to people taking time off.

So when someone is on furlough, you need to pay holiday at the usual rate. That means, if you’re only receiving 80% furlough pay, you are responsible for topping up the additional 20% so employees are getting 100% pay for their holidays.

Can I tell employees when to take holidays?

Yes, if you give them sufficient notice. This is usually double the length of the holiday, so if you need someone to take two weeks off, you need to give them four week’ notice beforehand.

You can give them less notice ahead of a require holiday period, but your employee has to agree to it, and you should outline this in your employment contracts.

Can I ask employees on furlough to take holidays?

The government guidance says this is possible, but you must make sure that you engage your people and explain why you need them to take a certain amount of holiday.

Can I cancel employees’ holiday?

Yes, subject to giving the required notice of cancellation – which must be the same length as their planned holiday. This right also allows employers to stipulate employees can’t take holiday at particular periods, if you have a period of increased demand, for example.

Remember, if an employee’s annual leave was previously authorised and they have booked a holiday, there may be financial repercussions to cancelling their authorised annual leave.

Carrying over holiday

The Working Time (Coronavirus Amendment) Regulations 2020 allow workers to carry over some holiday where it has not been ‘reasonably practicable’ to take it in the holiday year because of the effects of COVID-19.

The untaken holiday can be carried over into the following two leave years.

When calculating how much holiday a worker can carry forward, employers must give workers the opportunity to take any leave that they cannot carry forward before the end of the leave year.

^{The information contained herein is based on sources we believe reliable and should be understood to be general insurance and risk management information only. The information is not intended to be taken as advice and cannot be relied upon as such. Statements concerning legal, tax or accounting matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal, tax or accounting advice, which we are not authorised to provide.}

^Sources:

<sup>1. https://www.gov.uk/government/publications/changes-to-the-coronavirus-job-retention-scheme/changes-to-the-coronavirus-job-retention-scheme
2. https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme</sup>