Coronavirus and Annual Holiday Entitlement

If the Coronavirus pandemic has had a significant impact on your business and you have furloughed some or all of your employees it’s important to remember that whilst furloughed they remain employed and continue to accrue statutory annual holiday entitlement (5.6 weeks) in the normal way. If you offer enhanced contractual annual holiday entitlement you are entitled to reduce the accrual of that entitlement to zero to reflect the fact that the employee is not working. You may also be in the opposite position and be so busy you don’t want employees to take holiday. To address both issues the government have announced further emergency legislation to relax the rules around the taking of annual holiday entitlement.

UPDATES

Updated guidance is released regularly and I will update this page as more details are announced.

This page was firstly published on 30 March 2020 and the last update was 14 May 2020.

This post explains the key changes to the regulations and explores practical points to consider and potential problem areas. It is important to appreciate that the new rules apply to all employees and are not restricted to furloughed or to non-furloughed employees only.

General Principles

The Working Time Regulations 1998 grant a statutory right to 5.6 weeks’ paid holiday each year. This consists of two elements:

  • 4 weeks holiday leave are derived from the Working Time Directive, and
  • 1.6 weeks additional leave is a UK legal right.

Typically, the statutory 4 weeks’ leave a worker is entitled to under EU law can only be taken in the year the worker was entitled to it, with exceptions in relation to sickness or maternity leave. Any leftover entitlement cannot be given as a payment in lieu unless the employment is terminated, therefore unused entitlement is lost. It is however possible to carry over 1.6 weeks into the following holiday year if mutually agreed by both parties.

There is also an obligation on employers to ensure that there is adequate opportunity for workers to take their holiday entitlement. Failure to do so could result in financial penalty.

What’s New

The new legislation relaxes the requirements on employees to take holiday in 2020.

These changes are temporary emergency measures that take affect from 28 March 2020, although no time frame has been set for them ceasing to apply. The government’s policy approach on annual leave and furlough remains under review, but this brings long-awaited clarification to employers across the country.

Business Secretary Alok Sharma commented: “Whether it is in our hospitals or our supermarkets, people are working around the clock to help our country deal with the coronavirus pandemic. [These] changes will mean these valued employees do not lose out on the annual leave they are entitled to as a result of their efforts, and employers are not penalised.” Environment Secretary George Eustice added: “We welcome the measures the food industry is already taking to keep shelves stocked and supply chains resilient, and will continue to support them with their response to coronavirus.”

Carry Over of Annual Holiday Entitlement

The relaxed rules ease the requirements on employers to ensure that workers take statutory amount of annual holiday in any one year. The aim is to allow businesses flexibility to deal with the pressures brought on by the virus more effectively.

The amended Working Time Regulations allow workers, where it is not reasonably practicable for them to take some, or all, of the holiday they are entitled to due to Coronavirus, to carry over up to four weeks of their unused statutory holiday into the next two holiday years.

The new rules do not appear to be restricted to certain industries or types of workers (for example, “key workers” as previously identified by the UK government). Instead, they simply require the worker to have been prevented from taking holiday because of coronavirus, including effects “on the worker, the employer or the wider economy or society”. It is not clear how this is intended to be interpreted, but it would appear that the government has adopted a wide and inclusive approach rather than looking to restrict the application of the new rules.

The carry-over is permitted into the two leave years immediately following the leave year in which it was due to be taken. So if your holiday year runs from January to December employees would be able to carry unused holiday entitlement from the 2020 holiday year into the 2021 and 2022 holiday years.

It is important to appreciate that although the changes permit the carry-over of holiday they do not sanction a wholsale deferral of holidays into 2021. So if employees wish to take their full holiday entitlement during this holiday year they should be allowed to do so. If you find yourself in the position of having to refuse a request for holiday, you may find it helpful to point to the ability to carry-over holiday so the employee understands they won’t lose that holiday altogether if it is not taken.

Given the lockdown restrictions, many workers are likely to want to postpone any holiday until they are allowed to travel again. Identifying a fair way of authorising competing leave requests will be important. This is likely to be easier if you have considered and announced a policy aimed at enabling staff to know how holiday will be managed during the remainder of the year and into the following holiday year.

Update 15 May 2020
The updated guidance clarifies circumstances in which the need to carry over holiday may arise and, helpfully, notes that employees on furlough are unlikely to need to carry forward statutory annual leave, as they will, in most cases, be able to take it during the furlough period. The guidance goes on to say, however that if, due to the impact of coronavirus on operations, the employer is unable to fund the difference between the furlough payment and ‘full’ holiday pay, then it is likely that this would make it not reasonably practicable for the employee to take their leave, thus enabling the worker to carry their annual leave forward. So, in short, if you are unable to Top Up pay to 100% for a ‘holiday’ period you must allow the employee to take (and be paid for) that period of holiday again at some point in the future.

Top Tip
Despite the changes to the legislation you should as far as is reasonably practicable encourage your workforce to take all of their holiday entitlement during the current holiday year. Allowing staff to hoard large amounts of untaken leave will likely cause problems for staffing levels later down the line.

When carry over is permitted you may consider requiring employees to take the days at certain times so you maintain even staffing levels throughout the holiday year.

Holiday Entitlement on Termination of Employment
The new rules also amend provisions of the Working Time Regulations in respect of calculating payments in lieu of accrued but untaken annual holiday entitlement on termination of employment; the new rules mean a worker can receive a payment in lieu of any of the statutory holiday they have carried over under these new rules, but have not taken at the time of termination.

Top Tip
It is acceptable to require an employee who is serving out their notice to use up some or all of their accrued holiday entitlement before the termination date. To eliminate or reduce significantly the cost of holiday on termination over the next couple of years build into your resignation acceptance letters that you may ask the employee to use accrued but unused holiday during the notice period.

Restrictions on Taking Annual Holiday Entitlement

There is now a new restriction on an employer’s right to refuse leave being taken on particular days. Ordinarily, an employer can prevent annual leave being taken at certain times if the requisite notice formalities are met for instance restrictions on holidays during December are common in the hospitality and retail sectors.

These amendment regulations mean that an employer will only be able to require a worker not to take carried-over leave on particular days where they have a “good reason” to do so. “Good reason” for this purpose has not been defined, although genuine operational reasons are likely to be sufficient.

Enforced Holiday

On 13 May 2020 the Government updated their holiday guidance to state that employers can force a furloughed employee to take a period of holiday.

This means if you are worried about a furloughed employee returning to work with an excessive amount of holiday you can ask them to take a period of holiday whilst they are furloughed. The required notice period is double the length of the holiday you require an employee to take i.e. for a period of 5 days holiday you would need to provide 10 days notice.

The guidance goes on to say, however, ‘that where an employer requires an employee to take holiday while on furlough, the employer should consider whether any restrictions the employee is under, such as the need to socially distance or self-isolate, would prevent the employee from resting, relaxing and enjoying leisure time, which is the fundamental purpose of holiday’. As such, whilst the government’s view is that you can require holidays to be taken during furlough, an employer requiring an employee to take a significant portion of their annual entitlement during ‘lockdown’ and particularly the more rigid version of ‘lockdown’ that was initially in place, could still face a challenge by way of an employment tribunal claim that they have not had the opportunity to enjoy their holiday. It is important to note that the government guidance, while persuasive, would not be binding on an employment tribunal.

Annual Holiday Entitlement and Employees Who Continue To Work

The changes will ensure all employers affected by the Coronavirus through increased working hours and increased levels of sickness absence have the flexibility to allow workers to carry over holiday when granting annual holiday could leave them short-staffed.

There needs to be some link back to the coronavirus pandemic to explain why the employee has not been able to take the holiday in question. In practice this test is going to be relatively easily met, since if both parties agree holiday should be carried over, there is going to be no one to dispute the necessary linkage back to the challenges created by the coronavirus.

Cancelling an Employee’s Holiday

If you are short staffed or have an increased work load and dont’ want employees to take holiday they had pre-booked you can cancel the holiday or request employees don’t take holiday on particular dates.

If you intend to cancel a period of holiday you must provide the employee with at least the length of holiday the employee had booked i.e. to cancel 5 days of holiday you would need to provide 5 days notice.

The notice period must be provided in advance of the first day of the holiday.

Bank Holidays

If you require employees to work on a bank holiday and they don’t normally do so you can ask them to by providing the standard notice period i.e. two days notice period for one day of work.

You must still ensure that they receive their statutory holiday entitlement for the year, so would need to allow them to take the days holiday at another time either of your choice or their own choice.

Annual Holiday Entitlement And Furloughed Employees

The changes relating to carry over of unused holiday entitlement do not exclude furloughed employees, this means they should be allowed to carry over unused holiday entitlement in the same way as employees who continue to work. The link back to the coronavirus pandemic will be easy to explain through the fact the employee was placed on furlough leave because of the Coronavirus pandemic.

Other Considerations In Relation To Annual Holiday Entitlement And Furloughed Employees

The original guidance issued by the government was silent on the issue of holidays and furlough leave and many contradictory views were publised causing much confusion.

The position, following numerous updates of the original government guidance, is now clearer.

Government Guidance
The current government guidance on the Coronavirus Job Retention Scheme states employee rights are not affected by being on furlough leave and therefore holiday entitlement continues to accrue as normal.

Guidance issued on 14 May 2020 clarifies that employees on furlough are unlikely to need to carry forward statutory annual leave, as they will, in most cases, be able to take it during the furlough period. The guidance goes on to say, however that if, due to the impact of coronavirus on operations, the employer is unable to fund the difference between the furlough payment and ‘full’ holiday pay, then it is likely that this would make it not reasonably practicable for the employee to take their leave, thus enabling the worker to carry their annual leave forward. So, in short, if you are unable to Top Up pay to 100% for a ‘holiday’ period you must allow the employee to take (and be paid for) that period of holiday again at some point in the future.

HMRC Guidance
HMRC Customer Support tweeted, on 8 April 2020, that it is possible to take annual leave when on furlough, and it must be paid at full pay. This means you don’t have to unforlough employees who want to take a period of holiday.

ACAS Guidance
Current ACAS guidance is ambiguous in that it could be interpreted as stating that furlough and holiday can be concurrent and holiday does not break the furlough which may offer some comfort to employers concerned at accrual of significant holiday entitlements during a longer furlough period.

Topping Up Pay

The issue for many of you will be the fact that employees should receive normal pay when on holiday which would mean you would have to top up the 80% you are paying them whilst furloughed to 100% for the period they are taking as holiday. You would then continue to reclaim the 80% from the government. That may cause financial problems for those of you who have no income because your business is dormant, in which case I recommend making it clear to employees that no holiday will be approved or enforced during the furlough period.

The right to carry over unused holiday entitlement into the next two holiday years may help engage employees who have not been permitted to take holiday during furlough due to the extra cost to the employer.

Bank and Public Holidays

With regards to bank holidays, the guidance states that:

  • if the employee usually works bank holidays their period of furlough will be unaffected but you must top up their pay to 100% for the day.
  • If the employee usually takes bank holidays as a holiday, you will either have to top up their pay to 100% for the day or give them a day in lieu to be taken at a later time either at your choice or their choice.

Most contracts of employment include bank holidays in the 5.6 weeks of entitlement. Therefore if a worker cannot take a bank holiday off due to circumstances connected with the coronavirus, they should be allowed to use the day at a later date in their holiday year. If this is not possible, they should then be allowed to carry them over in the following two holiday years.

If you want to limit the amount of carry over you could, by giving notice, require workers to take a bank holiday as paid holiday. An exception to this is if a worker is on sick leave or maternity leave.

Enforced Holiday Entitlement

If you are concerned about furloughed employees returning to work with a large amount of holiday to carry over into the next holiday years you may consider enforcing a period of holiday on them whilst they are furloughed, assuming you can afford to top up pay to 100%. Both the HMRC and ACAS guidance are silent on the issue of enforced holidays but the Government issued updated guidance on 13 May 2020 which supports enforced holiday whilst furloughed.

I was previously cautious about this approach as it means you are in effect running down holiday entitlement with public money. But with the new Government guidance my previously cautious amber light has changed to green.

The relevant part of the guidance states:- “If an employer requires a worker to take holiday while 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.”

If you are considering enforcing a period of holiday on your furloughed employees the normal rules on taking annual holiday entitlement under the Working Time Regulations 1998 continue to apply. This means you would need to give twice as much notice as the length of the holiday you want them to take (e.g. ten days’ notice for five days’ holiday) unless the contract says something else.

When the employee is on holiday you must pay them at 100% so you will need to top up their pay for the appropriate number of days.

Remember, asking staff to take holiday during the Coronavirus crisis could impact on holiday they have already booked for later in the year. So you should explain your situation as early as possible and be available to resolve any worries they may have about how the situation will affect their entitlement or future plans.

How To Deal With Pre-booked Holiday

Many employees would have had holidays booked for the Easter and Spring Bank school holidays. Those holidays whether abroad or in the UK are probably now cancelled by the holiday company due to the Coronavirus and social distancing rules. I’ve been asked by a number of clients whether they are obliged to cancel holidays that employees are now not going on as the holiday has been cancelled. There is no requirement to do this, unless you have specific rules in your holiday policy or contract of employment, however you may decide to be more flexible and allow cancellation.

How To Deal With Employees Who Are Trapped Abroad

If an employee was overseas on holiday and can’t get home because their flight has been cancelled you can expect that they will try to identify other methods of getting back home, If for whatever reason, they cannont travel back, there are several other ways in which you can deal with this:

  • Annual Holiday: extending the existing period of holiday will depend on how much annual entitlement they have remaining and you would need the employee’s agreement. You could enforce a period of holiday on them but you would need to provide notice at least twice the length of the amount of days holiday to be taken, uncertainty about the length of their extended absence and the point they find out about the cancelled flight would make this difficult. If your holiday year is April to March your employee may have used their full years entitlement in which case you may authorise that a few days are brought forward from the next years entitlement.
  • Work Where They Are: this won’t be tenable for the majority of jobs and the employee is unlikely to have the necessary equipment they need to fulfill their duties.
  • Time In Lieu: even if the employee does not have enough banked time you could agree they make the time up on their return, say over a period of one month.
  • Authorise A Short Period of Paid Leave: you may authorise a short, one or two days, of paid leave.
  • Authorise A Period of Unpaid Leave: this would need to be mutually agreed with the employee.

A combination of the above will probably be used if the extended absence turns out to be longer than a day or two.

What’s Next?

The government’s guidance is constantly being updated and I will review the content of these pages as more information becomes available.

If you have any questions please call me on 0114 360 0626 or simply email me at enquiries@kea-hr.co.uk.

Up-to-date information for individuals and employers on the spread of the coronavirus can be obtained from www.hpa.org.uk

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Coronavirus and Annual Holiday Entitlement