We have already been asked by several clients about whether furloughed employees can take annual leave and we expect to be asked this question more and more as the coronavirus pandemic continues.
To start with, an employee’s annual leave continues to accrue even while they are furloughed.
Next, the government has anticipated the future problem of employees trying to take annual leave in the period immediately after the pandemic eases when employers are trying to re-build their businesses. In order to prevent a great rush to take holidays in the second half of this year, in late March the government passed emergency legislation to allow employees to carry over up to 4 weeks of untaken leave into the next two leave years where it has not been reasonably practical for the employee to take leave in the current year.
Employers may also want to consider allowing their employees to carry over the additional 8 days of UK statutory leave and/ or any additional leave granted under the employment contract.
But can employees take annual leave while they are on furlough and is it a good idea for their employer if they do? Under the rules of the Coronavirus Job Retention Scheme, periods of furlough leave must last at least 3 weeks although employees can be placed on and off furlough repeatedly so long as each furlough period is at least 3 weeks long. HMRC updated its guidance on the Scheme on 4 April but it doesn’t mention annual leave at all, leaving unanswered the questions of whether annual leave interrupts a furlough period, or whether an employer can claim for wages paid to a furloughed employee who takes annual leave and if so, how much.
If a furloughed employee does take annual leave, either by requesting it or being ordered to by their employer (after giving notice that is twice as long as the annual leave to be taken), then if the employee works normal hours, they will be entitled to holiday pay at the usual rate and not at furlough pay rates. However, for employees who either (1) work normal hours but whose pay varies according to how many hours they work, or (2) do not work normal hours, holiday pay should be calculated using average pay over the 52 weeks immediately before the period of annual leave to be taken.
Therefore, if an employee takes annual leave instead of furlough leave, they will probably be entitled to higher pay than their furlough pay and the employer may either be unable to claim that holiday pay back at all or will be responsible for the excess over the claim limit of 80% of taxable income capped at £2,500 per month.
For the time being, we would advise employers to wait until HMRC provides clarification on the interaction between furlough and annual leave before allowing or asking furloughed employees to take annual leave.
Linda Wylie, Meade King LLP
Linda is a highly experienced specialist Employment & Dispute Resolution Solicitor at Meade King LLP in Bristol. If this article is of relevance to your current situation and you would like further advice, please contact her and she will be happy to help you: Linda Wylie