Furloughing employees – new guidance on holiday pay

In what is becoming a regular event, the government has updated its guidance on furlough at the end of the working week. There are a number of changes and clarifications, and we will be updating our comprehensive FAQs on the coronavirus job retention scheme as soon as possible.

The guidance for employees and the new guidance explaining how to calculate what you can claim now contain a section on holiday pay. This confirms that holiday can be taken during furlough, and gives the following guidance on pay:

• Furloughed employees continue to accrue holiday in accordance with their employment contract

• Employees can agree to vary holiday pay entitlement, but almost all employees are entitled to 5.6 weeks’ holiday under the Working Time Regulations 1998 (“WTR”) which they cannot go below.

• The WTR requires holiday to be paid at the employee’s normal rate of pay, or on the basis of average pay over the previous 52 working weeks if pay varies.

• This means that holiday during furlough should be paid at the usual holiday pay rate under the WTR.

• For employees who do not normally work bank holidays, the employer must either top up to full holiday pay or give a day of holiday in lieu at a later date.  Employees who normally work on bank holidays should continue to be paid under the furlough scheme.

• Employers will not be able to claim the additional top-up to full holiday pay thorough the furlough grant.

In summary, this confirms that the usual laws on holiday apply and so the WTR rules on calculating holiday pay will continue to apply during furlough. If an employee takes WTR holiday during furlough, the employer will have to top up to full holiday pay and this cannot be reclaimed from the government. Some employers may have paid for the Easter bank holidays at a lower furlough rate of pay, in which case this guidance indicates that they will owe additional payments. 

Employers are still free to agree a different rate of pay for contractual holiday over and above the WTR entitlement of 5.6 weeks, and this is something that can be agreed when an employee is put on furlough. 

The guidance also says that employers can restrict when leave can be taken if there is a business need.  In fact, employers can generally prevent employees from taking holiday if they give the required amount of notice under the WTR (by giving notice of the same number of days as the holiday the employee wanted to take, e.g. 5 days’ notice to prevent or cancel 5 days of holiday). The new right to carry over holiday of up to 4 weeks into the next 2 holiday years may assist disgruntled employees who have not been permitted to take holiday during furlough due to the extra cost to the employer, although this only applies if the employee has not been able to take their statutory annual leave entitlement due to coronavirus.

This section in the guidance ends by stating, “during this unprecedented time, we are keeping the policy on holiday pay during furlough under review”. This suggests that the position may change again – although depending on the changes proposed that may be difficult, as the WTR is based on EU law which remains binding in the UK at the moment.