Please Note: All information correct at time of writing on 6 April 2020. We do our very best to make sure our information is as up to date as possible, but we’d encourage you to check out our latest articles and to check the government website for updates as they happen.
We’re still waiting for clarification from the government on the relationship between annual leave and furlough. The original guidance issued on the Coronavirus Job Retention Scheme was completely silent on the question of holidays. This leaves employers in the difficult position of having to make decisions about their employees’ holidays, and in particular the forthcoming Bank Holidays, without knowing how this may affect furlough periods and their right to claim a furlough grant.
It remains one of the most controversial aspects of the scheme, with a diverse range of opinions from employment law solicitors as to how this position should be interpreted.
In an interview on 27 March, Ben Kerry, Head of Labour Markets at the Treasury and one of the architects of the Job Retention Scheme, was asked what would happen if an employee was on holiday when a decision was made to put all employees on furlough.
He answered that the employee wouldn’t be on furlough during the holiday period and therefore the employer could not recover the costs of the holiday from the scheme, but the employee could be put on furlough immediately after.
Assuming this approach is reflected in the scheme rules, this suggests:
What it does not tell us is whether a period of holiday, taken during a period of furlough, breaks the continuity of the furlough period.
For example, employee A is on furlough for two weeks and then has a week of holiday. Immediately after her holiday she returns to furlough.
We know that furlough must be taken in blocks of three weeks. If holiday breaks the continuity of the furlough period, employee A’s employer would not be able to claim a furlough grant for the first two weeks of A’s furlough as it was less that the required three-week period.
In order for her employer to claim for the furlough period after her holiday, she will have to be on furlough for a minimum period of three continuous weeks.
If, however, the holiday does not break the continuity of furlough, if A spends one week on furlough after her holiday, her employer will be able to claim the subsidy for her entire period of furlough.
Employers, therefore, have two options – allow holidays to be taken or cancel any holidays due to be taken.
Given the uncertainty surrounding the scheme rules, we would advise cancelling any annual leave which is due to take place during a period of furlough. Employers have the right to do this if they give the employee notice equivalent to the length of the holiday. However, you can always ask the employee to waive this. The advantages to the employer of this option are:
The advantage of this approach is that it does not require any changes to be made, it allows annual leave to be used up at a time when it has no impact upon the business (apart from financially) and the employee has the benefit of a boost to their income. However, the disadvantage is that, until we know how holiday will affect continuity of furlough periods, the business is assuming the risk that this may affect their ability to claim a grant for the full period of furlough. Furthermore, it appears the business will not be able to recover holiday costs from the scheme and therefore this will have to be funded by the business at full holiday pay costs.
The most pressing issue for businesses with employees on furlough at the moment is how to treat the Easter and May Bank Holidays, which will fall during the initial three-month scope of the scheme. Again, there are a number of options here:
Let’s take a look at some of the pros and cons of each of these approaches.
For many small businesses, this may be an option they feel they have no option but to take because the current crisis leaves them with no choice but to do so. However, they should be aware that the scheme rules may prevent them from claiming furlough pay for Bank Holidays. The risks of this approach are:
The advantage of this approach is that employers will be meeting their contractual and/ or statutory obligations. The disadvantage is that it is speculated (but we do not know for sure) that employers will not be able to claim through the scheme for any element of holiday pay including a Bank Holiday. We are also unclear as to whether taking a Bank Holiday could break the continuity of a furlough period. Whilst it would seem very unfair if the rules were to operate this way, there will always be some element of risk until the position is clarified.
This avoids the disadvantages of the first two options, but it does leave the employer with additional holidays to manage when the employees come back to work. This will be partially alleviated by the introduction of new rules allowing carry over of up to 4 weeks holiday into the following two leave years.
We would hope that, given the speed with which business owners have had to make decisions and the total absence of guidance available to them, the Treasury and HMRC will not treat holidays as breaking the continuity of furlough as to do so would penalise employers who have only tried to do the right thing by their employees.
Furthermore, interpreting the rules this way would only undermine the main purpose of the scheme which is to preserve businesses whose operation has been affected by coronavirus and leave them in a strong position to return to trading as normal as quickly as possible.
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