Owner Kate Upcraft Consultancy Ltd
Share this content

Furlough scheme and holiday pay explained

Kate Upcraft answers FAQs on the interaction of the coronavirus job retention scheme (CJRS) and workers’ holidays, including the tricky calculation of holiday pay.

19th May 2020
Owner Kate Upcraft Consultancy Ltd
Share this content
closed sign on outskirts of Southend during the coronavirus lockdown
istock_Laurence Berger_aw

Furlough pay is a new type of paid statutory leave which has been introduced very quickly without any time to consider the employment law implications.  

It’s to their credit that HMRC published any information around holiday entitlement as part of the CJRS guidance, as this is strictly the remit of the Business, Energy and Industrial Strategy (BEIS) department. However, we had to wait until the 13 May for BEIS to produce guidance on both holiday entitlement and holiday pay during the pandemic.

Territorial coverage

As employment law is a devolved matter to Northern Ireland, the guidance published by BEIS only applies in Great Britain. For workers with contracts drawn up under the Employment Rights (Northern Ireland) Order, refer to this guidance.

Holiday entitlement

The worker’s contract continues whilst under furlough, so their annual leave entitlement continues to accrue, as it does during any period of statutory leave whether that be sickness or family-related.

If employers wish to reduce holiday entitlement below the 5.6 week legal minimum this needs to be done as an amendment to the worker’s contract.

Requesting or changing holiday

Both workers and employers can request to take holiday during a period of furlough. As long as they give double the notice to the period of time they wish to take as annual leave, this should be acceptable.

Conversely, if the employer or worker wishes to cancel or move leave, the notice required is the length of the leave entitlement. Thus, to cancel a week’s leave the notice must be given such that it expires the day before the first day the holiday was due. With the agreement of both parties these notice requirements can be reduced.

Taking annual leave does not break a period of furlough. The legal risk of an employer forcing workers to take holiday during furlough is that the purpose of annual leave is to be able to rest during time away from the workplace, which could be argued is severely restricted during the lockdown.

Given that the CJRS has now been extended to 31 October many employers will have no choice but to insist on some leave being used during this time.

Bank holidays

These are not additional or special days in respect to the 5.6 weeks holiday entitlement, they are just days that are part of annual leave when an employer potentially requires workers to take annual leave as the business is not operational. Given that many businesses aren’t currently fully operational it’s up to the employer to decide whether the bank holidays that have fallen so far in April and May need to be assumed to have been taken as part of the worker’s annual leave entitlement.

The workers should be paid for those days’ holiday taken during furlough just as they would be for any other period of annual leave. If workers are unusually required to work on bank holidays the standard notice periods apply.

Holiday pay

Any holiday entitlement that is taken, for bank holidays or any other days, must be paid based on the holiday pay regulations which changed on 6 April 2020 (SI 2018/1378). It is therefore important to distinguish between periods of leave taken up to 5 April 2020 and subsequently.

Prior to 6 April 2020, pay during annual leave for those with variable pay, was based on the pay in the 12 weeks prior to the holiday. From 6 April 2020 (in Great Britain but not Northern Ireland) pay over the 52 weeks prior to the holiday must be considered. For workers with less than 52 weeks’ service, the maximum number of weeks of paid employment prior to the holiday date is considered.

As was the case with the 12 week averaging rule, any weeks in which there are no working hours are excluded from the pay calculation. It therefore seems entirely reasonable, although has not been spelled out in guidance, that any furlough weeks are excluded when calculating average pay.

It’s highly likely, as there have been long periods of furlough now, that many employers will be counting back further to establish a maximum number of 52 worked weeks to include in the average. The legislation provides that an employer does not have to go back further than 104 weeks prior to the holiday week to establish the average pay.

The first four weeks of annual leave must be paid based on ‘normal remuneration’ and case law over recent years has defined that as pay ‘intrinsically linked to the performance of the duties’ so includes regular payments even to salaried staff of items such as commission, bonuses and overtime. The final 1.6 weeks, and any additional contractual leave, needs to be paid based on the ‘value of week’s pay’ which does not necessarily have to include more than basic pay.

Whatever an employer chooses to include in the components used to calculate holiday pay during furlough, the worker is entitled to the full amount of ‘normal remuneration’ or the ‘value of week’s pay’. However, the CJRS claim can only be for a maximum of 80% up to the £2,500 cap. Any amounts over and above this will have to be fully employer funded.

If an employer cannot afford to fund the top up for holiday pay it would be reasonable to refuse a request to take holiday at this time. As the working time regulations have been amended (in Northern Ireland too) annual leave can now be carried forward over the next two leave years. Salary in lieu of holiday is not permitted in any circumstances other than termination of employment.

Replies (17)

Please login or register to join the discussion.

avatar
By Ian McTernan CTA
20th May 2020 11:23

I can see the employer's reaction to this: employee says 'you must pay me 100% I'm going on holiday', employer who has zero income says 'take the rest of your life off' and gets rid of them.

Employees need to realise employers are not bottomless pits of money. They are currently sitting at home being paid for doing nothing (in a lot of cases). Count that as holiday. In the meantime the employer is struggling to keep the business afloat so that the employee has a job to come back to.

Someone needs to change the rules to reflect reality and employees should be voluntarily giving up their holiday 'entitlement' to help out their employers- not demanding full pay when they haven't done anything for two months.

Thanks (0)
Replying to Ian McTernan CTA:
avatar
By psimonparsons
20th May 2020 16:29

If the employee is on 80% Furlough, the employer has actually paid nothing. So no money is leaving any bottomless pit. However, employers need to budget in the fact that they have legal obligations to their employees for holiday payments, this law has been established for many years. And with Furlough the employer would only be meeting 20% of that liability. Balance yes, one sided logic no.

Thanks (0)
avatar
By sbeardon
20th May 2020 12:40

Am I correct in saying that the employer has to pay 20% of the holiday pay as the rest would be included in the furlough pay?

Thanks (0)
Replying to sbeardon:
Morph
By kevinringer
20th May 2020 13:08

Employer pays 100% and reclaims 80% so actual cost 20%.

Thanks (0)
Replying to kevinringer:
avatar
By claire spurrell
20th May 2020 14:30

Am I correct in thinking employer cost may not be just 20%? Eg variable hours minimum wage worker. 5 days holiday taken in may 2020. So employer top up cost is x hours @ new 20/21 min wage rate less 5/31 of furlough pay (80% of higher of 19/20 average or equivalent month last year)??

Thanks (0)
Replying to claire spurrell:
avatar
By psimonparsons
20th May 2020 16:31

No. NMW does not apply to time not worked such as Holiday. The requirement of the holiday pay amount are covered by ERA and WTD i.e. normal earnings or for variable paid employees, 52 week average earnings (exclude zero pay weeks from the average as they don't count). No requirement for NMW.

Thanks (0)
Replying to claire spurrell:
avatar
By psimonparsons
20th May 2020 16:31

No. NMW does not apply to time not worked such as Holiday. The requirement of the holiday pay amount are covered by ERA and WTD i.e. normal earnings or for variable paid employees, 52 week average earnings (exclude zero pay weeks from the average as they don't count). No requirement for NMW.

Thanks (0)
Replying to claire spurrell:
avatar
By psimonparsons
20th May 2020 16:31

No. NMW does not apply to time not worked such as Holiday. The requirement of the holiday pay amount are covered by ERA and WTD i.e. normal earnings or for variable paid employees, 52 week average earnings (exclude zero pay weeks from the average as they don't count). No requirement for NMW.

Thanks (0)
Replying to claire spurrell:
avatar
By psimonparsons
20th May 2020 16:31

No. NMW does not apply to time not worked such as Holiday. The requirement of the holiday pay amount are covered by ERA and WTD i.e. normal earnings or for variable paid employees, 52 week average earnings (exclude zero pay weeks from the average as they don't count). No requirement for NMW.

Thanks (0)
Replying to claire spurrell:
avatar
By psimonparsons
20th May 2020 16:31

No. NMW does not apply to time not worked such as Holiday. The requirement of the holiday pay amount are covered by ERA and WTD i.e. normal earnings or for variable paid employees, 52 week average earnings (exclude zero pay weeks from the average as they don't count). No requirement for NMW.

Thanks (0)
Replying to sbeardon:
avatar
By pharvey
20th May 2020 14:03

sbeardon wrote:

Am I correct in saying that the employer has to pay 20% of the holiday pay as the rest would be included in the furlough pay?


That's how I understand it including if we insist that the recent spate of Bank Holidays are taken as leave - the furlough scheme has been a lifesaver but a kick in the teeth for those that have continued to work through their dedication or professionalism (and were able to) to keep companys' and organisations afloat.
Thanks (1)
avatar
By essex accountant
20th May 2020 13:07

the picture is from Southend-on Sea and the message was being ignored last weekend - it was packed and social distancing was impossible! Had to queue for 20 minutes to buy an ice cream ....

Thanks (0)
Morph
By kevinringer
20th May 2020 13:11

I've been in contact with our furloughing employers. Most have decided to compel employees to take some annual leave. No employees have objected. Many are grateful they've still got a job, for now.

Thanks (0)
Morph
By kevinringer
20th May 2020 13:14

HMRC's first holiday pay guidance was issued after Easter by which time weekly paid employees had been paid. Most had been paid 80%. Employers don't want to give them a day off in lieu so many of my employers are choosing to compel the employees to take paid holiday leave during furlough. This assumes the employer has sufficient funds to pay the additional 20%.

Thanks (0)
Morph
By kevinringer
20th May 2020 13:18

Kate says 'The legal risk of an employer forcing workers to take holiday during furlough is that the purpose of annual leave is to be able to rest during time away from the workplace, which could be argued is severely restricted during the lockdown.' I would argue that employees can (and do) rest now and get better rest than in normal times. What is more restful: sitting in your back garden or catching a flight to Spain (in normal times). I know that some have suggested employees may be anxious being confined to home but is this the responsibility of the employer? I know of many in these strange times are happier at home than away because they feel safer.

Thanks (1)
avatar
By markmorley
21st May 2020 22:30

Hi Kate is the 1.6 part of the statutory leave related to the public holidays and is that why the pay is basic rate? what rate of pay should be applied to this bank holiday? is it the normal 52week average with variable commission on the basis this is part of the first 4 weeks or s it basic pay?. is there a definition of variable paid employees or does it cover say sales people on basics plus commission where you'd normally be paying specific commission on specific sales .

Thanks (0)
avatar
By markmorley
21st May 2020 22:31

Hi Kate is the 1.6 part of the statutory leave related to the public holidays and is that why the pay is basic rate? what rate of pay should be applied to this bank holiday? is it the normal 52week average with variable commission on the basis this is part of the first 4 weeks or s it basic pay?. is there a definition of variable paid employees or does it cover say sales people on basics plus commission where you'd normally be paying specific commission on specific sales .

Thanks (0)