Annual Leave & ‘Furlough’- Your Questions Answered

Annual Leave & ‘Furlough’- Your Questions Answered

A considerable number of our clients currently have staff on ‘furlough’, and have asked a number of questions regarding the accrual of annual leave, which is a legal entitlement for staff, during this period.  

We have attempted to answer some of these questions and give you some ‘food for thought’ on options that might work for your business:

Will an employee on furlough leave accrue annual leave?

Currently yes, HMRC’s guidance on calculating the furlough grant has been amended to expressly deal with annual leave. It confirms that: “Furloughed employees continue to accrue leave as per their employment contract”. This will include entitlement to accrue annual leave in accordance with their contract.

However, it is worth noting that the government may change the rules regarding the interplay between annual leave and furlough leave, we will keep you updated to this note if those changes materialise.

Can an employee on furlough leave be required to take their annual leave during furlough leave?

In many situations, it is possible for an employer to require an employee to take some of their annual leave at a time chosen by the employer. HMRC’s guidance on calculating the furlough grant now expressly deals with annual leave. This confirms that: “Employees can take holiday whilst on furlough”, provided they are paid their full pay calculated in accordance with the Working Time Regulations 1998 in the usual way.

The starting point is to check the employment contract to make sure if there are any contractual provisions, which allow the employer to designate a specific period of annual leave (such provisions are very common). Secondly, check if there is any ‘relevant agreement’ under the Working Time Regulations, which permits the employer to force an employee to take annual leave. If the contract or relevant agreement contains such provisions, the employer should comply with those terms (which may include giving a minimum amount of notice of a period of leave).

In the absence of such express provisions, an employer requiring an employee to take leave at specified times, must give notice equivalent to at least twice the period of leave to be taken. For example, the employer must give two days’ notice to take one day’s leave, or two weeks’ notice to take one week’s leave.

However, again the government may change the rules regarding the interplay between annual leave and furlough leave, so please watch for updates to this note if those changes materialise.

Can an employee unable to take holiday due to coronavirus carry-over their annual leave?

Anyone who is incapacitated due to coronavirus, and therefore unable to take all of their annual leave before the current leave year ends, will be entitled to carry it over in the usual way.

In addition, new regulations are now in force, which allow a worker to carry-over up to four weeks of their annual leave (that required under the EU Working Time Directive) into the next two leave years, if it was not reasonably practicable for them to take that leave as a result of the effects of coronavirus (including on the worker, the employer or the wider economy or society). However, employers with furloughed employees should seriously consider requiring them to use at least part of their holiday entitlement during the furlough period.  If it is not managed, in the return to normality, employees will return to work with significant accrued but untaken holiday which may add pressure to an employer’s financial situation and also to staff resourcing.

Will a furloughed employee be entitled to their contractual benefits and to accrue annual leave?

The furloughed employee will be entitled to continue to receive all of the non-discretionary benefits of their contract, including the right to accrue annual leave, unless they expressly agree to waive these. Statutory benefits e.g. 5.6 weeks holiday per annum and minimum pension contributions under the pension’s auto-enrolment scheme cannot be waived and must therefore continue. 


‘Food for thought’

To the extent that an employee’s contractual annual leave entitlement exceeds the minimum statutory entitlement of 5.6 weeks, it may be possible to expressly agree that the employee will ‘waive’ their enhanced entitlement in exchange for their pay being ‘topped-up’ (beyond 80%) during the period of furlough leave. For example, if an employee’s contract provides for 25 days’ holiday plus 8 days’ bank holidays, then agreement could be sought to waive 5 days of this entitlement and ‘convert’ that entitlement into cash which can be then used to ‘top-up’ their furlough leave pay. 

Requiring furloughed employees to take some of their annual leave could have the effect of: (a) topping up the monthly pay of employees; and (b) meaning there is not a glut of accrued holiday to be taken later in the year.