Furlough & Annual Leave
Sentient Group Ltd
Info Update 2020/14                                                         Issue Date: 02/04/2020
Furlough & Annual Leave - Some Practical Issues
A lot of questions are being asked about whether holiday entitlement should continue during any period of Furlough or whether it can be pro-rated during this time and at what rate should it be paid? Also, whether employers can require that holiday is used up during the period of furlough. Meaning they are not left with employees having large amounts of holiday left to take in the remainder of the year, after things return to ‘normal’.

Whilst many practical issues are not so straight forward, one area does appear to be clear is annual leave will continue to accrue during any furlough period(s).

However, the answer to the other issues has generated a fair amount of debate amongst the legal/HR profession and there are two schools of argument

Anti-Taking Holiday during Furlough:
The guidance on the Coronavirus Job Retention Scheme (CJRS) states, “Employees on sick leave or self-isolating should get Statutory Sick Pay but can be furloughed after this”. This infers that an employee can only be on sick leave or furlough leave but not both. If that is the case, then there is a risk that taking holiday during a period of furlough leave will break the continuity of the Furlough period (which has to be a Minimum period of 3 weeks).

ACAS tend to agree with the above and say the same applies to holidays I.E. If an employee has been laid off or put on furlough, they can’t use their holidays as you can’t do both at the same time.

With regard to the issue of employees having lots of holiday left to take in a short period of time this has been addressed by the government by changing the working time regulations to allow for the carryover of 4 weeks annual leave for up to two years. See information Update 2020/13.

Pro-Taking Holiday during Furlough
Some leading employment lawyers believe that the government isn’t concerned about employees being on two types of leave simultaneously; but do not want someone claiming two benefits from them at the same time; for example, employees who are absent and in receipt of Statutory Sick Pay, cannot be furloughed; or similarly, someone who is on maternity leave, and in receipt of Statutory Maternity Pay, cannot be furloughed. As the guidance is clear about that, and holiday has not been mentioned, it is averred that an employee could take annual leave during a period of furlough, given the guidance does not specifically exclude it, but also because holiday pay is paid by the employer, and is not recovered in full or in part from the Government.

If this is right, if an employee takes part of their annual leave during a period of furlough leave, the employer would be able to claim the holiday pay (in full or in part) from HMRC through the CJRS.

Then there is the thorny issue of what to pay if holiday is allowed to be taken during a period of furlough leave. Should the employee be paid at 80% or 100% of usual monthly wage costs. The difficulty in calculation of monthly wage is that the guide to the CJRS states clearly that Fees, commission and bonuses should not be included, whereas calculation of wages (for holiday pay) under European case law includes allowances, commission and bonuses.

Neither argument is clear on this aspect and you might well ask – why are we boring you with the legal machinations? Well, we know we need to give practical and pragmatic advice and these are the things we wrestle with before putting out all of our e-mail updates – Put your violins away, we are not after sympathy……

So, what do we advise on this given there is no absolute clear ruling?
Having weighed up both sides of the argument and in the absence of clarity from the government our advice on this could be summarised as, and in the words of an old esteemed long retired colleague - ‘When in doubt pay Nowt!’ If there is a dispute about what you have paid, the employee would use internal procedures to seek redress. If that fails they would have to make a claim in the Employment Tribunal. Given the current circumstances we are sure that such matters would be clearer by then and things could be resolved without too much difficulty.

Protect your right to claim the 80% Furlough pay grant
This is a key consideration given that the whole point of it is to help employers and employees get through the ‘lockdown’ period. Without further clarity or guidance, we feel it would be sensible to take the view that holiday cannot be taken whilst an employee is on furlough as this may jeopardise any subsequent claim for the 80% grant from the government.

If you have furloughed employees and they wish to end the furlough (after the minimum 3 week period) to take a period of annual leave it should be possible to take them off furlough, pay them for a period of annual leave (at full pay) and then return them to furlough after the holiday concludes. But keep very clear records on this.

It should also be possible to place an employee on annual leave instead of furloughing them as long as you give the requisite notice of the requirement to take annual leave (twice the length of the holiday you are asking them to take as allowed under Working Time Regulation). If you intend to do this, you should seek advice from Sentient beforehand.

As always we are monitoring the situation closely and whenever clarity emerges we will keep you updated.
The advice and comment in this update is not meant to be an authoritative statement of the law. The articles and summaries should not be applied to any specific set of facts and circumstances without seeking further advice. Whilst every care is taken to ensure that the content is correct Sentient cannot accept responsibility for the accuracy of statements made nor the result of any actions taken by individuals after reading such.
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