It has now been almost a couple of weeks since the Coronavirus Job Retention Scheme (“CJRS”) was announced and further guidance has been issued recently regarding its implementation. However, there is presently no official guidance on how annual leave should be dealt with for those on furlough leave. We would expect that it should be applied as follows however, employers should be aware that the position could change if further guidance is issued. For now, employers should avoid letting furloughed employees take annual leave and should instead plan to allow employees to carry over leave into the next leave year.
Can employees take annual leave whilst on furlough?
In the absence of guidance and applying existing employment law principles, it seems that employers claiming 80% of an employee’s wages under the CJRS should be able to allow or ask employees to take annual leave during the period that they are on furlough. The eligibility criteria for furlough leave includes that the employee must not carry out any work for the employer. If an employee is on annual leave then this would still be consistent with that criteria and therefore we expect that there should be no issue with this.
Can employers require employees to take their holiday leave during furlough?
The Working Time Regulations 1998 allow employers to insist that an employee takes annual leave during a particular period so long as they provide twice the number of days’ notice of the amount of days’ annual leave they wish the employee to take (i.e. provide two-weeks’ notice for one week’s holiday). The Government guidance on the CJRS is silent on whether this still applies however, we expect that employers will still be able to insist on employees taking annual leave whilst on furlough provided that they give the correct notice period. For example, an employer can put an employee on furlough for three weeks (which is the minimum period that an employee can be placed on furlough) and make the third week annual leave. This is because the employer can give the employee the two week notice period required for one week’s holiday during the first two-weeks of furlough.
Should holiday pay for employees on furlough be based on 80% or 100%?
Again, it is not clear from the Government guidance how holiday pay should be calculated and we hope to get further clarification on this when the scheme is up and running. Holiday pay has historically been complicated and contentious when calculating what constitutes “normal remuneration”.
At the moment, there are arguments that employers cannot contract out of being paid their normal remuneration during annual leave. In other words, employers that agree this with employees expose themselves to risks of unlawful deductions of wages. Therefore, employees should not receive anything less than their normal remuneration if they take annual leave whilst on furlough leave. The big question is: what constitutes normal remuneration for a furloughed employee? Would it be the 80% of normal pay that they are now receiving or is it the normal pay they receive whilst they are normally working? The answer is not clear, however, one interpretation of the current legislation is holiday pay should be based on employees’ pay while they are normally working (i.e. 100%).
For those on variable hours/pay, their holiday pay is currently calculated on an average of their normal remuneration over a period of 12 weeks. Crucially, the law changes on 6 April 2020 and employees are entitled to have their holiday pay calculated on their normal remuneration averaged over 52 weeks.
Therefore for employees on furlough leave and on the basis that HMRC agree with this position, employers should calculate holiday pay over the previous 12 weeks (if pre-6 April 2020) and over the previous 52 weeks (if after 6 April 2020). An employee’s remuneration should be based on their remuneration (including overtime pay, bonuses and commission) calculated over either 12 weeks or 52 weeks as above (and paid at 100% of that). While the case law is not settled, it is prudent for employers to include both voluntary overtime as well as guaranteed overtime within an employee’s normal remuneration. If an employee is not paid their holiday entitlement, this is an unlawful deduction of wages.
It is worth noting however that there should be no reason why the employer cannot recover 80% of employees’ basic salary from the Government during holiday periods and then top this up to the normal remuneration of 100% including any bonus or commission payments if applicable. The risk for employers that do not do this is that they are faced with claims of unlawful deduction of wages from employees. We expect further guidance on this in the weeks to come and employers should be mindful to make any payments for holiday pay in line with any further guidance to reduce the risk of any claims. This is still a very uncertain area and employers should be careful not to allow holidays to be taken to avoid falling foul of the furlough leave requirements. Employers can serve counter-notices to any employee requesting holiday and this is the best route to take until the position is clearer.
If you need any advice about any of the above please speak to the Blackadders’ Employment Team.
Fiona Knox, Trainee Solicitor
Duncan Milne, Solicitor
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