Employee Holidays and Coronavirus
29th May, 2020
British summertime has started, and we at least are starting to see some sunshine.
Lockdown rules remain in place, but have been relaxed in England to allow us to take unlimited exercise, meet one person from another household in the open air and even drive within England to beauty spots to take exercise. Further loosening of restrictions are imminent (at the time of writing), but we are probably all acutely aware that holidays are not going to be the same for a while.
The question therefore arises whether workers can usefully take their annual leave. Those working in certain industries, key workers, are also likely to find it difficult to take a break whilst their services are in great demand.
So, what do employers need to be aware of in respect of annual leave?
The starting point is that all workers are entitled to a minimum 4 weeks paid holiday per year in accordance with the European Working Time Directive (‘EU leave’). UK law supplements this by giving a further 1.6 weeks under the Working Time Regulations 1998 (‘UK leave’).
Furlough and annual leave
When the Coronavirus Job Retention Scheme (Furlough) was created by the government it was initially unclear how it would affect annual leave. A minimum three week requirement is in place to claim from HMRC under the scheme. Would taking leave break the three week minimum? Are furloughed employees allowed to take annual leave at all? Could it really be called ‘holiday’ when everyone is on lockdown? Would employers have to pay holiday at the agreed 80% wage (or £2,500 per month), or based on the employee’s normal earnings? Can an employer direct an employee to take holiday, or cancel leave already booked?
These questions have now mostly been answered in government guidance.
Annual leave does accrue whilst on furlough and holiday can be taken by furloughed employees. Furthermore, taking leave in the first three weeks will not break the minimum requirement.
However, crucially, employers will have to pay furloughed employees full pay for annual leave days taken. The Working Time Regulations state that annual leave pay must be based on a normal week’s pay. In the context of furlough leave, that week’s pay should be calculated using an employee’s normal wages, rather than any agreed reduction during furlough. As of April 2020, a normal week’s pay for workers with irregular pay is based on average pay over the last 52 paid weeks.
Employers can still claim from HMRC for any time a furloughed employee is also on annual leave, but will have to top it up to the employees’ usual full salary for any EU leave. For this reason, an employer may not want to allow employees to take leave during furlough, if topping up the payment is going to cause cash flow issues in these difficult months.
On the other hand, employers may want to force employees to take annual leave whilst on furlough, rather than finding employees have several days to use upon their return. There has been some debate about whether employers can compel employees to take annual leave whilst furloughed. After all, the Working Time Directive makes it clear that the intention of annual leave is to ensure employees get sufficient breaks from work. Furloughed employees are not actually working (assuming they have not obtained new employment whilst furloughed). So, they are already having that break, but not all workers are in a position to properly enjoy their ‘holiday’. This is subject to personal circumstances, responsibilities, living arrangements, and travel restrictions and many individuals have found themselves with more home work and/or are at home with more caring duties than usual.
The government guidance confirms that “employers can require workers to take holiday” and “can cancel a worker’s holiday, if they give enough notice to the worker”. The correct statutory notice to give if requiring an employee to take statutory leave is double the length of the holiday, so if you are asking them to take a week’s holiday you must give two weeks’ notice. Cancelling a worker’s booked annual leave requires notice equal to the length of the planned holiday.
As a practical point, if an employer wants to ensure that employees are using up their annual leave during furlough, it is possible to require every third week on furlough to be designated as annual leave. This complies with the notice requirement (i.e. by giving two weeks’ notice of one week’s leave) and may help to ensure they do not have a large amount to use upon return from furlough.
EU leave is not generally allowed to be carried over into the next annual leave year. UK leave can be carried over into the subsequent year if provided for in the employment contract.
However, for EU leave, it has always been the position that if the employee is prevented from taking their leave in the year, because of e.g. incapacity or maternity leave, holiday can be carried over.
The government has now amended the Regulations to include provisions so that if it was not “reasonably practicable” for an employee to take leave this year because of COVID-19, leave can be carried over into the next two years.
This is primarily designed for employees who cannot take leave because they are required in their role as a key worker. It is intended to help both businesses and employees to fulfil their obligations, allowing the possibility of stopping employees from taking leave now when they are needed, and then spreading out their leave entitlement into the future.
Conversely, the guidance explains that furloughed workers are unlikely to need to carry forward statutory annual leave as they will be able to take it during the furlough period (as discussed above). However, if, due to the impact of coronavirus on operations, the employer is unable to fund the difference between the grant sum and full pay, potentially this would make it not reasonably practicable for the worker to take leave, enabling them to carry it forwards. This may depend on how much time is left in the business’ annual leave year once the employee returns from furlough; whether there is sufficient time for them to reasonably use up their leave.
Employers may want to:
- Assess the cost to the business for furloughed employees to be put on annual leave (the cost being the difference between the 80% grant and normal pay);
- Weigh up whether the business can support these costs, and whether it would be advantageous to direct employees to take leave, using up their entitlement;
- If these costs cannot be supported, analyse whether employees will have sufficient time after returning from furlough to use up leave before the end of the company’s annual leave year;
- If not, consider whether the new carry over rules will apply;
- Consider whether employees who are not furloughed will be prevented from reasonably taking their holiday during the annual leave year, and therefore benefit from the carry over rules.
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