Furlough and Annual Leave: How does it work?

For Employers, Furlough

We have updated this blog on 22 April 2020 to reflect the recent government guidance changes. Please note, the government have stated that they are keeping the policy on holiday pay during furlough under review, so this may be subject to further changes.

A question which we are frequently coming across on our coronavirus helpline (coronavirus@thrivelaw.co.uk) surrounds employees and whether they can be placed on furlough and take annual leave at the same time and if so, how this works. Below we have considered some questions with regards to this matter.

It is worth noting that employees can now carry up to 4 weeks’ annual leave over a 2-year period if they have not been able to take their leave due to COVID-19. We have written other blogs about the coronavirus here.

Can an employee be on furlough and annual leave at the same time?

The government have confirmed that an employee can be on furlough and annual leave at the same time. This means that if staff have pre-booked holiday or are required to take bank holidays off, employers don’t have to cancel their leave and add it back into their holiday allowance.

However, please note that the Working Time Regulations (WTR) requires holiday pay to be paid at the normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay the employee received in the previous 52 working weeks. Therefore, if an employee takes holiday whilst on furlough, their employer should pay them their usual pay in accordance with the WTR. This is likely to mean topping it up to 100%.

If you have previously read our furlough and annual leave blog you will notice that our original interpretation was correct in saying that employees are entitled to the upcoming bank holiday as usual, whilst furloughed, and that employees can take annual leave whilst furloughed.

If the employer and employee agree, and the contract permits it, they can carry over holiday too if the employer can’t afford to top it up or the employee wants to take this at a time when they aren’t locked down this might arise.

Can employers require employees to take their holiday leave during furlough?

We cannot see any reason why this is not possible, but employers should seek agreement rather than force this issue. An employer may want to do this to deplete the amount of annual leave when work starts again, even though we now know that it can be deferred for up to two years its seems fair to allow them to carry it over.

Our concerns in forcing employees to take leave are that this could impact on morale, trust and good faith. In forcing employees to use annual leave at this time of uncertainty might diminish what the employee has to look forward to in the future and when they can’t actually go anywhere at the moment employees may want to use the annual leave in the future to go away for a proper break.

Nevertheless, the Working Time Regulations, regulation 15, make it clear that an employer can insist on the employee taking their leave on particular dates, as long as they give twice the number of days’ notice that they want the employee to take as holiday e.g. give 2 weeks’ notice if you want them to take 1 week holiday.

Is holiday pay when on furlough based on 80% or 100%? And does it include commission and bonuses?

The guidance now confirms holiday pay should be full pay, so employers need to pay 100%, or “normal remuneration” which would include bonuses, commissions (where contractual) and overtime.

The employer can claim 80% of the holiday pay back whilst the employee is on furlough.

Will it mean my employer cant claim furlough if I go on annual leave within the first three weeks?

We understand that taking annual leave whilst on furlough doesn’t break the furlough leave, like it would if you were sick. They run concurrently. That’s why the employer can claim the 80% of employees pay still.

Do I still accrue annual leave whilst on furlough?

Whilst an employee is furloughed, they will continue to accrue leave as per their employment contract. Employees can agree to vary holiday pay entitlement with their employer as part of furlough (this must be recorded in writing if this agreement is reached) however most workers should be entitled to 5.6 weeks of statutory paid annual leave each year.

Please be aware that all the information and advice given above is simply our interpretation from the guidance we have been given so far, this is subject to change as and when the government bring out further guidance.

We are happy to answer specific questions on our advice line coronavirus@thrivelaw.co.uk.

By the Thrive Tribe.

Anything within this article should not be taken as legal advice. Any information provided will be general advice and for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action. If you wish to obtain specific advice to your situation and your decisions, please contact us and we will thereafter be able to advise.

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