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Many employers are asking questions about holiday pay for furloughed employees on the Job Retention Scheme (JRS). Some of the most common questions are included below. Please note that this is a fast-developing area with HMRC issuing new guidance on a regular basis so please ensure that you take up to date legal advice if you are encountering any of these issues.
Do furloughed employees continue to accrue holidays?
Yes, the guidance is clear that employees continue to accrue holidays during furlough leave as per their employment contract and Working Time Regulations (WTR).
Can furloughed employees take holidays during furlough leave?
Yes, while the guidance was initially silent on this point, it now confirms that employees can take holidays while on furlough leave.
What is the rate of holiday pay for furloughed employees?
Working Time Regulations require holidays to be paid at the employee’s normal rate of pay. Where this varies an average over the last 12 weeks is taken (recently changed to 52 weeks in GB). Therefore, where an employee has been reduced to 80% pay while on furlough, they must still receive 100% for the periods of holiday and employers will need to top this up. Normal remuneration for WTR can also include elements of pay such as overtime, commission and bonuses. However, the JRS will not cover discretionary bonuses or commission. Therefore, unless if the employer is going to top up pay to 100% the rate of pay will differ for furloughed employees depending on if they have taken holidays or not.
Will the Government reimburse employers through the job retention scheme for holidays?
The JRS will reimburse 80% up to the monthly cap of £2,500 for periods when furloughed employees are on holiday. Employers will need to top up the rest.
What about public holidays?
There is no statutory entitlement to paid leave for public holidays but there may be a contractual entitlement. If so then furloughed employees should be paid at the normal rate for this time. However, it may be possible to agree a day off in lieu with the employee.
Can we force employees to take holidays during furlough leave?
Subject to your employment contract it is possible to force employees to take holidays provided you give twice as much notice as the time that is being taken off. However, rather than taking the draconian step of forcing this on employees it would be best practice to encourage employees to take holidays during this time.
What if employees want to cancel holiday that they had previously booked?
It is foreseeable in the current circumstances that employees may want to cancel holidays that they have previously booked as their holiday plans have been ruined. Again it will be necessary to review the employment contract but generally the consent of the employer will be required to do this. Refusals can lead to upset employees. So employers should communicate reasonably with employees to explain the needs to the business and come to an agreed resolution.
What if employees have large amounts of unused holiday after the crisis is over?
Despite asking employees to take holidays it is understandable that employees may be reluctant to take holidays in the current circumstances. Therefore, there is a potential at the end of the crisis that there will be a large number of employees with accrued holidays. Potentially many will immediately want to take the holidays that they previously missed out on. Employers will need to manage this process effectively and communicate business needs to employees to ensure that this does not cause a problem. In order to help matters, temporary legislation has been put in place which permits employees to carry over up to 4 weeks of their untaken leave into the next 2 leave years. This is where it is not reasonably practicable for them to take some, or all, of the holiday they are entitled to due to coronavirus.
What happens to accrued holiday if you have to make an employee redundant?
While it is the intention of the JRS to avoid redundancies it is an unfortunate reality that it will not save every job. Indeed, it would not be contrary to the scheme to begin the redundancy consultation during it. The rules in relation to accrued holiday are unchanged in this regard and employees will be due a payment in lieu of any accrued but untaken holiday. This would usually be paid as a lump sum in their final pay.
Holiday pay has always been a complex topic and the JRS has added another layer of complexity to this. The HMRC guidance currently states that “during this unprecedented time, we are keeping the policy on holiday pay during furlough under review”. Therefore, there may be further updates on this topic and employers should seek legal advice to confirm their position.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Employment Law Team at Cleaver Fulton Rankin for further advice or information.