Staff holiday pay in the wake of the coronavirus crisis

30th Jul 2020
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We’d usually be in the midst of the tourist season about now but, as in so many areas of our lives, COVID-19 has thrown a spanner in the works.

Is now a good time to go on holiday? The coronavirus remains very much a live issue. Trains and planes are anxiety-inducing for some, even with masks and obsessive sanitisation regimes.

On the other hand, COVID-19 case numbers have reached the lowest levels in months and a feared second wave is, for now, not on the immediate horizon.

And if you don’t go on holiday now, then when? The thought of postponing that beach-side break until summer 2021 will fill some travel addicts with horror.

Even if you’re confident it’s safe to go on holiday, it’s tricky to work out what you’re actually allowed to do, who you can go with and whether your preferred getaway destination is an option.

Many of the things that make holidays fun, from indulgent dining experiences to all-night partying, are allowed only in certain cities and countries, under certain strict conditions.

Is it worth it? Or should you just let as much as annual leave as possible roll over and take extra time next year when things might – just might – be a bit less stressful.

Most businesses would certainly rather avoid that scenario.

Managing demand for holiday

Consider the impact of a workforce powering through 2020 without taking much leave, only to disappear en masse the moment restrictions are fully lifted.

Some businesses tried to head that instinct off by insisting on staff taking, say, 40% of their annual leave before the end of June or July, even if that meant spending a fortnight under lockdown conditions drinking Piña Coladas in their back gardens.

Although most firms asked nicely, the law backs them up: you can insist on staff taking leave on specific dates as long as you give them notice in the form of double the length of the required holiday.

Others have been more ruthless yet, asking staff to sign new contracts with reduced annual leave entitlement. The UK statutory minimum is 28 days, including bank holidays, which in most firms doesn’t leave much room for manoeuvre.

The business angle

Within businesses, accounting for staff holiday in a complex landscape of support schemes and economic pressures can feel tricker than ever.

The furlough scheme in its initial form was fairly easy to administer – staff were either on furlough, or not.

Now, though, the scheme is entering a new phase designed to gently ease people back to work, heading towards a complete shutdown in October – a date which Chancellor Rishi Sunak insists is non-negotiable.

In the meantime, as of the start of this month, staff can be part-furloughed – a potential accounting and HR headache which may have unintended consequences.

Conservative think-tank Bright Blue reports that two in five UK organisations are planning to make redundancies as a result of the withdrawal of furlough scheme support.

In retail and hospitality especially, hard hit by reduced footfall on the high street, redundancies are already under way.

Staff being made redundant are also entitled to holiday pay for days untaken on a pro rata basis. Equally, however, if they’ve already taken lots of leave, they may find their redundancy payment reduced by employers clawing back holiday pay already awarded.

Calculating holiday pay

There are a couple of bits of good news when it comes to calculating holiday pay for furloughed staff.

Despite the apparent complications, holiday pay for all workers, furloughed or otherwise, should be calculated in line with the standard guidance, and based on a worker’s usual earnings.

In other words, staff can take leave while they’re on furlough, and should be paid at 100% of their usual salary, not the reduced furlough rate. This is in line with the principle that a worker should not be financially penalised for taking holiday.

The other good news is that Capium’s cloud payroll software now processes flexible furlough, including holiday calculations, from £1.80 per client for subscribing accountancy practices.

Get in touch to get your practice set up with Capium today.

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