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Payment in Lieu of Holiday

Have the Payment in Lieu of Holiday rules changed due to COVID?

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It has always been my understanding and is stated clearly on gov.uk that 'The only time someone can get paid in place of taking statutory leave (known as ‘payment in lieu’) is when they leave their job'. We have had several employers ask us to include an addition on the payroll for a payment in lieu of holiday as the end of the holiday year nears. We are directing the clients to Gov.uk and the guidance above and advise that they should take HR Advice as we are not HR Advisors.

One client has come back and said that their HR Advisors have told them that they can make the payment in lieu of holiday as they 'are a small company' and so it would 'not be practical for them to be able to cover the holidays'. This seems completely wrong to me, and the fact that they would be unable to cover the employee should they take leave is purely a staffing issue. I thought that this is the reason why HMRC has extended the holiday leave to be taken over the next 2 holiday years, so employees do not all request to go on leave en masse.

This employer only offers the statutory minimum holiday entitlement and does not provide anything above this.

Have I missed something here? Is my understanding wrong or is the HR Advice my client has received wrong?

Another client has come back and said that we are wrong as the employees are on Zero-hour contracts - I am not sure how this fact changes the situation in terms of paying out accrued holiday.

If the client is wrong and it should not be paid, would you continue to add it to the payroll on the basis that they have received the advice independently, and as mentioned, we are not HR Advisors?

It is my opinion that I will include the addition irrespective of my thoughts as the client has sought the HR Advice and so any liability falls on the employer and their HR Advisor.

Thank you in advance!

Replies (12)

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By Barbara G
25th Mar 2021 17:41

I would agree with you in all respects. I've had similar queries from employers and when contacting HR experts have been advised that to include unused holiday entitlement as a payment, even though the employees can agree to it, prevents employees from taking their entitlement to valuable time away from the workplace, therefore is in breach of working time regulations and, even if employees, with mutual consent might receive payment in lieu, the employee can still insist at a later date that they have been disallowed paid time off, which the employer would then legally be obliged to provide them with, so the employer loses out. I have been advised by HR experts that the only time employees should receive payment in lieu is, as you pointed out, when they are leaving.

However, sometimes we have to go with what the client asks for and if he/she insists, I would make sure you point out in writing (email is fine) that you don't recommend it and make sure you receive written confirmation from the employer that he/she wants you to act on his /her instruction.

As far as I am aware the current situation doesn't make a difference, employment law still stands. There might be a clause in the employment contract which stipulates that unused holiday entitlement cannot be carried over to the new year, therefore is forfeited, which is a different issue.

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By Paul Crowley
25th Mar 2021 18:07

If payment in lieu of holiday is illegal then HMRC needs to regulate more
Employees do not have the right to be paid, but employer can permit
I assume furloughed staff are the problem.
Use or lose has been the norm for years. Furloughed staff have had plenty of time away from the office.

But clients can do whatever they want. Better still if you disagree and are overruled

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By frankfx
25th Mar 2021 17:53

Have a word with ACAS.

A free service

Share with them the points you have outlined.
And the concern to get it right

Then share with us the outcome.

Good question.thank you

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By Barbara G
25th Mar 2021 18:09

Sorry in addition to my previous answer, when I contacted an HR expert, I wasn't told that it was illegal to pay time in lieu, but that it wasn't advisable because the employee still has the right to insist on paid time away from the workplace, even though he had already been paid for time in lieu. So, it could become an issue if at a later date employees decided they had a bone to pick with their employer and insisted on time off. When I pointed this out to our clients most of them decided against taking the risk and let the employees carry over holidays.

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ALISK
By atleastisoundknowledgable...
25th Mar 2021 19:36

I’ve an employee who can back from 12 month mat leave in March then went straight onto furlough. 2 years accrued holiday carried forward - I think not. I’m paying her for it this month then starting at scratch again.

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By Barbara G
25th Mar 2021 20:05

Just a wee question, if someone's on furlough, can you not agree with them to take some of their holidays while on furlough, so you're only paying the top up to their full pay, or has that changed? Saves having to carry over holidays to be paid at full pay when they've been off anyway

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Replying to Barbara G:
ALISK
By atleastisoundknowledgable...
25th Mar 2021 21:39

They can come off furlough, get paid 100% for holidays, then go back on furlough again.

Were you suggesting that the employer could claim furlough for when they’re taking a holiday day? That’s incorrect.

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Replying to atleastisoundknowledgable...:
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By Hugo Fair
25th Mar 2021 21:51

Sorry, but not true ... see https://www.gov.uk/guidance/holiday-entitlement-and-pay-during-coronavir...

"Workers on furlough can take holiday without disrupting their furlough. The notice requirements for their employer requiring a worker to take leave or to refuse a request for leave continue to apply. Employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so.

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."

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Replying to atleastisoundknowledgable...:
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By Barbara G
25th Mar 2021 22:34

Yes, the employer can claim furlough for furloughed workers who are on holiday as per link provided by respondent above. The employer must top up the furlough to the full amount of the employee's pay, but he can still claim furlough. Which is why I was wondering why you hadn't asked your employee to utilise holiday entitlement after she returned from maternity leave and while she was on furlough, rather than having to pay it all in lieu. If she hasn't returned from furlough yet maybe you could consider it as an option?

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Replying to Barbara G:
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By JLPrice
26th Mar 2021 11:37

Yes, we did encourage employers to require their employees to take holiday while on furlough, and many did with the top-up to furlough being used so minimising the cost to the employer. However, as with most things we advise, not everyone took this option up, and so they have the holiday issue now.

We also have a couple of employers who have worked through the pandemic with no staff (or minimal staff) on furlough. The staff that worked had to often cover sickness from covid, the few people that were on furlough etc, and so built up their holiday.

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Replying to JLPrice:
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By Hugo Fair
26th Mar 2021 11:59

For those clients in the situation you describe in your 2nd para ... see "The Working Time (Coronavirus) (Amendment) Regulations 2020" as referenced in my post below.
Still no pay in lieu, but an option to carry forward entitlement in those specific circumstances.

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By Hugo Fair
25th Mar 2021 21:47

The Payroll answer:
Employer makes decisions and retains liability for those decisions. Payroll (whether in-house or external bureau) merely processes those decisions. If there's any risk (as say a Payroll Services provider) that ER can claim to have acted on your advice, then you should put in writing your contrary opinion before processing.

The HR answer:
This isn't really the right forum for this aspect. However:
* Statutory holiday cannot be paid 'in lieu' except as untaken leave when employment ceases;
* Statutory holiday cannot generally be carried over into the next holiday year (which may be different to the calendar year or tax year depending on employment contract T&Cs) ... but with exceptions:
- 1.6 (of the total 5.6 statutory) weeks can be carried forward into the following leave year if a written agreement exists between the worker and the employer;
- Where a worker cannot take annual leave due to being on maternity or sick leave, employers must allow workers to carry all their statutory annual leave forwards.

The Covid-19 impact, covered in The Working Time (Coronavirus) (Amendment) Regulations 2020, is that:
* 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, the untaken amount may be carried forward into the following 2 leave years. But when calculating how much holiday a worker can carry forwards, employers must give workers the opportunity to take any leave that they cannot carry forward before the end of the leave year.

To put it mildly, this is not every word written on the topic of holiday pay (and its interaction with Covid-19) ... but it shows how it's a far greater issue for HR than for Payroll!

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