Update on furlough leave and annual leave including bank holidays

We have now received further guidance on this which makes it clear that it is possible for an employee to take annual leave, including bank holiday during furlough leave.

ACAS have accordingly updated their guidance in relation to the position regarding annual leave and bank holidays during furlough leave.

Can an employee be on annual leave and furlough leave at the same time?
The ACAS guidance suggests that workers can continue to request to take annual leave while they are on furlough. It says: “If an employee is ‘furloughed’ (temporarily sent home because there’s no work), they can still request and take their holiday in the usual way. This includes taking bank holidays.”

It therefore appears that the position is that employers now have two options in relation to annual leave and bank holidays during the furlough leave period:

  1. Allow employees to take annual leave and/or bank holidays during their furlough period; or
  2. To direct that employees take their annual leave and bank holidays at another time. However note that where employers want to refuse permission for a worker to take leave on particular days they must give notice which is at least as long as the holiday requested.

Can employers require employees to take their annual leave during furlough?
Under the Working Time Regulations 1998 (WTR), employers are able to give workers notice directing them to take their statutory holiday on specified dates, provided such notice is twice the length of the period of leave the worker is being directed to take. So, for example, an employer needs to give two weeks’ notice to require their employee to take one week’s annual leave.

Employers might want to do this for a number of reasons, including:

  • to deplete some or all of the employee’s outstanding annual leave;
  • to reduce the amount of leave still to be taken when work resumes;
  • to get the Government to fund 80% of an annual leave payment.

Rate of pay for annual leave whist on furlough leave
If employees choose to take periods of annual leave during furlough, or are required to do so, there is an additional question about the rate of holiday pay they should receive.

Under EU law, a worker must be paid their ‘normal remuneration’ during four weeks of annual leave. It is unclear what would constitute ‘normal remuneration’ during periods of furlough given that most employers will be paying the “furlough payment” of 80% of salary. The ACAS guidance suggests that employees who take annual leave during furlough leave should be paid “in the usual way”.

Our view is that if the employer decides to allow employees to take annual leave and/or bank holidays during their furlough leave, i.e. option 1 above, then employers must ensure that the employee is paid their full salary for that period of holiday. This means that the employer must top up salaries to 100% for these days.

What this means in practice is:

  • the employer recovers 80% of the basic salary for any part of furlough leave when the employee is also on annual leave, but;
  • the employer has to top that up to 100% (not 80%) of normal remuneration including the bonuses and commission element.

This only applies to the first four weeks of annual leave. For the remaining 1.6 weeks of WTR leave, there is an argument that the employer only need pay 80%. However, the more likely position is that the employer needs to top up the furlough payment to normal basic salary (so without the bonuses and commission) because the parties cannot contract out of WTR holiday pay.

For enhanced holiday entitlement beyond the 5.6 weeks, an employer and employee can agree whatever they want, including that it be paid at only 80% during furlough.

HMRC Customer Support (albeit via twitter) have supported the above views that (a) it is possible to take annual leave when on furlough and (b) it must be paid at full pay.

For more information please contact employmentlaw@woodfines.co.uk

-Maria Gallucci

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