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Clive Dobbin | 21st May 2020

Coronavirus (COVID-19) : Furlough and holidays – Update 20 May 2020


Clive Dobbin | 21st May 2020

Coronavirus (COVID-19) : Furlough and holidays – Update 20 May 2020

Furlough and holidays has been a subject we have received a lot of enquiries about. Since the furlough scheme was announced in March 2020 we’ve been providing regular updates on furlough leave, and the guidance which the government has been issuing.  Over the last few days a number of updates have been updated, which we summarise in this blog. 

Perhaps of most interest to employers and employees alike is the guidance which has now been issued with regard to furlough and holidays.  This guidance answers many of the questions that employers had, but still leaves some significant issues unanswered.

Updates on extension of furlough scheme; furlough and holidays and what can be claimed

Below we set out what the new updates on the furlough extension; furlough and holidays and amounts that can be claimed are.

Extension of Furlough Scheme

When it was originally announced, the furlough scheme was due to come to an end on 31 May 2020. This was later extended to the end of June. However, on 12 May the Chancellor, Rishi Sunak, announced that it was now to be extended to the end of October 2020. This is not surprising, following shortly after the Prime Minister and government announced details of the “conditional roadmap” for slowly lifting restrictions, with some businesses not expected to reopen until July at the earliest.

The government have said that they will expect employers to contribute to the cost of furlough from August, and so the suggestion is that the grant available from the government will be reduced from the current 80%.  It also appears that from August employees will be able to return part time, with the employer still being able to claim under the furlough scheme for the hours not worked.  Further details on both of these points is eagerly awaited.  Details of the announcement on the furlough extension  can be found by following the link.

Furlough and holidays

In the previous updates, one issue which wasn’t addressed, and about which employers were asking for clarity, was the interaction between furlough leave and holiday and in particular whether employers could require workers to take holiday whilst on furlough.  Although not legally binding, the latest guidance from the Department for Business, Energy and Industrial Strategy provides some useful advice and clarification to some of these  holiday entitlement issues.

A recap of holiday and furlough

Previous government guidance has confirmed that:

  • employees continue to accrue holiday whilst on furlough. This is not surprising, and is what most people thought anyway;
  • as part of the agreement to go onto furlough, employees can agree a reduction in their holiday entitlement. However, employees cannot agree to reduce their holiday entitlement below the 5.6 weeks of statutory paid annual leave each year;
  • when on holiday, employees are entitled to be paid at their normal rate of pay. Employers will still be able to reclaim the 80% under the furlough scheme, but will then have to top up the employee’s pay to their normal (100%) rate of pay;
  • the government has also clarified the position with regard to bank holidays. If employees normally have bank holidays off, the guide says that the employer will either have to top up the pay to the usual rate of holiday pay, or give employees a day of holiday in lieu.  Therefore, for the recent bank holidays, if employers want them to be treated as holiday, then they should make sure that they top up the pay of their employees to normal pay for those two days, but only claim back the 80% under the government scheme.

The new guidance

The new guidance issued on 13 May makes clear that furloughed workers can take holiday whilst on furlough without bringing their period of furlough to an end. It also goes further in suggesting that employers can require staff to take holiday whilst on furlough and can also cancel an individual’s holiday, provided they give enough notice to the individual.

The required notice periods are:

  • double the length of the holiday if the employer wishes to require a worker to take holiday on particular days (so if the employer wants an employee to take 1 week’s leave, then they should give the employee 2 weeks’ notice);
  • the length of the planned holiday if the employer wishes to cancel a worker’s holiday or require the worker not to take holiday on particular dates.

It would be possible for employers to ask staff to take or cancel holiday with less notice, but they would need the individual’s agreement to do so.

This position is in line with previous ACAS guidance which also suggested that employers could require employees to take annual leave whilst on furlough, and so will provide some reassurance to employers over this debated issue.

However, the new guidance does state that if an employer requires a worker to take holiday whilst on furlough, the employer:

“should consider whether any restrictions the worker is under, such as the need to socially distance or self-isolate, would prevent the worker from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday.”

Employees may therefore challenge being asked to take holiday, on the basis that during the current ‘lock down’ they are not able to get the most from that holiday, and will not be able to rest, relax and in particular will not be able to enjoy that leisure time. This is likely to be an area where we see litigation in the coming months.

The new guidance also covers what payment employees should receive.  Previously the position appeared to be clear, that employees should receive full pay whilst on holiday.  This is certainly what the ACAS guide said, and still says.  The ACAS Guide is clear, and says:

Furloughed workers must get their usual pay in full, for any holiday they take.”

However the new guide is not as definitive on the point and says:

An employer should not automatically pay a worker on holiday the rate of pay that they are receiving while on furlough, unless the employer has agreed to not reduce the worker’s pay while on furlough.

If a worker on furlough takes annual leave, an employer must calculate and pay the correct holiday pay in accordance with current legislation – see the standard guidance. Where this calculated rate is above the pay the worker receives while on furlough, the employer must pay the difference.”

Under current legislation, holiday pay is calculated in accordance with the definition of a week’s pay.  If the employee is paid a fixed salary then a week’s pay is calculated in accordance with section 221 and is:

the amount which is payable by the employer under the contract of employment in force on the calculation date if the employee works throughout his normal working hours in a week

It is our view that the above means that the employee should receive full pay, as if the employee was working his normal working hours in the relevant week then they wouldn’t be on furlough, and so wouldn’t be receiving furlough pay but would be receiving normal, full, pay.

However, for employees who work variable hours, a week’s pay is calculated by reference to an average of the previous 52 weeks (increased from 12 weeks in April 2020 for holiday pay).  The weeks which are taken into account are weeks in which remuneration is paid.  It is our view that the payments paid to an employee whilst on furlough will count as remuneration, and so when you calculated the average you take into account the furlough weeks as well.  Therefore, if the employee is paid at 80% of normal pay whilst on furlough this will have the affect of reducing the average over the 52 week period to less than full pay.

As the averaging period is 52 weeks (in which the employee is paid) then the impact of the above will be less, but will become greater as the furlough period continues.

Guidance on what you can claim

The government has previously issued guidance on how to calculate the amount which can be claimed under the scheme.  The guide is snappily called “Work out 80% of your employees’ wages to claim through the Coronavirus Job Retention Scheme”.

The guide doesn’t really tell us anything we didn’t know already, but does contain some useful examples on how to calculate what you can claim, so is definitely worth a read. 

It does clarify a couple of points with regard to employees who are not, at the calculation date, receiving their usual rate of pay.

For an employee returning from sick leave, and who is then put onto furlough leave, the guide clarifies that the claim should be calculated against their normal salary, before tax, not the pay they received whilst off sick.  This is beneficial for those employees who are paid SSP only whilst off sick.

Then if an employee is returning from a sabbatical, or other unpaid leave, the claim should be based upon what they would have been paid had they been on paid leave (so presumably the rate paid for holiday).

The guide confirms what was said previously, that the full amount of what employers are claiming must be paid to the employee.  The guide confirms that furloughed staff must receive no less than 80% of their reference pay (up to the monthly cap of £2500).  Employers cannot make any deductions from the sums paid to employees, other than the normal deductions for tax and employee’s national insurance and employee pension contributions.  Employers cannot therefore deduct, for example, an administration charge, fees or other costs in connection with the employment.

The online service opened on 20 April 2020, so claims have now been able to be made for some time. Employers must submit their claim for all employees at the same time.  Employers can make a claim in advance of a payroll run, provided that the payroll run is imminent, and so for example on 20 April 2020 could have submitted claims for their usual April payroll. 

Our previous guidance on annual leave, bank holidays and furlough has further information on this subject.

If you have any queries regarding furlough and holiday rules please contact a member of the Employment team.

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