BEIS issues guidance on holiday entitlement and pay during coronavirus (COVID-19)

13/05/2020

Employment analysis: New guidance looking at how holiday entitlement should operate and how holiday pay should be calculated during the coronavirus (COVID-19) pandemic, including coverage of how such rights interact with furloughing under the Coronavirus Job Retention Scheme (CJRS), and of the special coronavirus statutory changes relating to carry-over of holiday, has been published by the Department for Business, Energy & Industrial Strategy (BEIS).

BEIS guidance: Holiday entitlement and pay during coronavirus (COVID-19)

During the coronavirus (COVID-19) pandemic period, various questions have arisen in relation to how holiday entitlement should operate and how holiday pay should be calculated. Some of these questions relate to the interaction between the holiday and holiday pay legal framework and the concept of furloughing employees under the Coronavirus Job Retention Scheme.

There have also been statutory changes made to the way in which holiday carry-over (from one holiday accrual year to the next) should operate in light of the pandemic. These were introduced with effect from 9pm on 26 March 2020 when the Working Time (Coronavirus) (Amendment) Regulations 2020, SI 2020/365, took effect. See Practice Notes: Holiday—Carry forward of leave: coronavirus (COVID-19) changes and Coronavirus (COVID-19)—dealing with issues in the workplace—Changes to rules for carrying over basic statutory holiday entitlement.

Initially, the only guidance on some of these holiday-related issues was provided by Acas, when they added the section Using holiday to their Coronavirus (COVID-19): advice for employers and employees on 31 March 2020 (see News analysis: The Coronavirus Job Retention Scheme: more holiday cancellations?). That guidance has since been revised multiple times.

HMRC, which administers the Coronavirus Job Retention Scheme (CJRS; see Practice Note: Coronavirus Job Retention Scheme), did not initially comment at all on issues relating to holiday in its Guidance for employers or Guidance for employees on the scheme. That HMRC guidance has also been updated multiple times. It was only on the fourth update to those guidance documents, on 17 April 2020, that some commentary was first added to the Guidance for employees regarding the interrelationship between holiday, holiday pay and furlough under the CJRS (see News analysis: Coronavirus Job Retention Scheme: fourth and fifth updates to HMRC employer and employee guidance).

New guidance on these issues has now been published on 13 May 2020 by the Department for Business, Energy & Industrial Strategy (BEIS): BEIS guidance: Holiday entitlement and pay during coronavirus (COVID-19). We set out below a highlights summary of what it contains. The guidance is divided into sections, which we cover in sequence in the following sections of our report:

Holiday entitlement

The first section of the new BEIS guidance is headed ‘Holiday entitlement’ and starts by recapping on the normal legal framework that establishes that (see Practice Note: Holiday for further information).

Holiday entitlement of furloughed workers

It goes on to state that workers who have been placed on furlough continue to accrue statutory holiday entitlements, and any additional holiday provided for under their employment contract.

Taking holiday

The second section of the new BEIS guidance is headed ‘Taking holiday’ and starts by recapping on the normal legal framework governing how employers may:

require workers to take holiday at a particular time, or
cancel a period of holiday that a worker has previously booked out

See Practice Note: Holiday — When statutory holiday may be taken and the notice requirements for further information.

Whether and when furloughed workers may take holiday

It goes on to state the following regarding workers who have been placed on furlough:

they ‘can take holiday without disrupting their furlough’, ie the taking of holiday will not contravene the CJRS rules so will not jeopardise the claim for their pay being made under the scheme
the notice requirements for their employer requiring a worker to take leave or to refuse a request for leave continue to apply
it advises, however, that:
- employers should ‘engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so’ at a particular time, and
- 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’

Bank holidays for furloughed workers

The guidance first sets out the normal framework for how the law relating to holiday entitlement relates to bank holidays (see Practice Note: Holiday — Whether there is a right to take a bank or public holiday as paid leave for further information).

As regards furloughed workers, it states as follows:

where a bank holiday falls inside a worker’s period of furlough and the worker would have usually worked the bank holiday, their furlough will be unaffected by the bank holiday
if the worker would usually have had the bank holiday as annual leave, there are two options:
- the bank holiday is taken as annual leave: if the employer and the worker agree that the bank holiday can be taken as annual leave while on furlough, the employer must pay the correct holiday pay for the worker (see discussion of holiday pay below: Holiday pay for furloughed workers). Employers may also require workers to take the bank holiday as annual leave if it gives the requisite notice for such a request (see Practice Note: Holiday — When statutory holiday may be taken and the notice requirements)

deferring the bank holiday: if the employer and the worker agree that the bank holiday will not be taken as annual leave at that time, the worker must still receive the day of annual leave that they would have received. This holiday can be deferred till a later date, but the worker should still receive their full holiday entitlement

Holiday pay for furloughed workers

The third section of the new BEIS guidance is headed ‘Holiday pay’.

That guidance makes clear that the legal framework for calculating holiday pay (see Practice Note: Holiday pay—Calculating statutory holiday pay: general) applies to furloughed workers exactly as it applies to those not on furlough.

Thus holiday pay for a furloughed worker:

should be calculated in the normal way, based on a worker’s usual earnings (ie not on the level of pay they are receiving on furlough)
an employer may only pay a furloughed worker on holiday the rate of pay that they are receiving while on furlough if that employer is topping up that worker’s furloughed pay to 100% of its normal level
where the correct rate for holiday pay (based on usual earnings) is above the pay the worker is receiving while on furlough, the employer must pay the difference (ie top up to 100% of normal pay)
the employer can, however, continue to claim the usual furlough amount for that worker in periods while they are taking holiday while on furlough. Hence, for example, if the worker is getting 80% of their normal earnings through the CJRS from HMRC, that will continue and the employer will have to make up that pay with the remaining 20% of normal pay while the period of holiday continues (even if the employer is not topping up furloughed pay in non-holiday periods of furlough)

Carrying annual leave into future leave years

The fourth section of the new BEIS guidance is headed ‘Carrying annual leave into future leave years’.

This part of the guidance begins by distinguishing between:

the basic four weeks per annum of statutory holiday (see Practice Note: Holiday — Statutory holiday entitlement), and
the 1.6 weeks of additional annual leave (see Practice Note: Holiday — Additional annual leave)

This distinction is relevant in this context because the special coronavirus (COVID-19) statutory rules in relation to carry-over of annual leave, under the Working Time (Coronavirus) (Amendment) Regulations 2020, SI 2020/365, only apply to the basic four week entitlement. See Practice Note: Holiday—Carry forward of leave: coronavirus (COVID-19) changes.

The guidance correctly summarises the effect of those amending regulations, stating that, where it has not been reasonably practicable for the worker to take some or all of the four weeks’ holiday due to the effects of coronavirus, the untaken amount may be carried forward into the following two leave years.

Some of the annual leave entitlement will not be able to be carried forward. That proportion would include:

the 1.6 weeks of additional annual leave, and
any part of the basic four weeks in respect of which it can be said that it was, despite ‘the effects of coronavirus’, nonetheless ‘reasonably practicable’ for the worker to take that leave during the original leave year to which it relates

As regards such parts of annual leave that cannot be carried forward, the guidance states that employers must give workers the opportunity to take that leave before the end of the leave year (to prevent them from losing the leave when the leave year ends).

Reasonably practicable

Clearly, application of the special coronavirus statutory mechanism for carry-over will depend on the interpretation of the phrase ‘not been reasonably practicable’. The guidance says that, in applying that test, an employer should consider various factors, such as:

whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures
the extent to which the business’ workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities
the health of the worker and how soon they need to take a period of rest and relaxation
the length of time remaining in the worker’s leave year, to enable the worker to take holiday at a later date within the leave year
the extent to which the worker taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation
the ability of the remainder of the available workforce to provide cover for the worker going on leave

The guidance goes on to say that:

employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and
where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity

The guidance sets out some worked examples of how the ‘reasonably practicable’ might apply in particular circumstances.

Furloughed workers and carry-over of annual leave

The guidance states baldly, without further explanation, that workers who are on furlough ‘are unlikely to need to carry forward statutory annual leave, as they will be able to take it during the furlough period’.

It does go on to refer to the need for an employer to ensure a furloughed worker receives 100% of normal pay during periods of holiday (see above: Holiday pay for furloughed workers) and comments that, where an employer is unable to fund the difference between furlough pay received under the CJRS and 100% of usual pay, due to the impact of coronavirus on its operations:

it is likely that this would make it ‘not reasonably practicable’ for the worker to take their leave, enabling the worker to carry their annual leave forwards
in this situation, the worker must still be given the opportunity to take their annual leave, at the correct holiday pay, before the carried-forward annual leave is lost at the end of the next two leave years

Which types of leave should be taken first after carry-over

The guidance considers the situation where a worker has carried over two weeks of leave for coronavirus reasons, and then also has a further 5.6 weeks annual leave entitlement in the new holiday year (ie 7.6 weeks in all).

It advises that:

it is generally best practice to allow the worker to take holiday first from the entitlement that expires first which, in practice, will be the new holiday year’s entitlement of 5.6 weeks
hence they should use up that 5.6 weeks first before using the two weeks carried over, because the carried over entitlement lasts for two years beyond the original leave year to which it relates

Preventing workers from taking carried over holiday on particular dates

Working Time (Coronavirus) (Amendment) Regulations 2020, reg 3WTR 1998, SI 1998/1833, regs 13(12), 15(2)

Under the special amendments related to coronavirus, where leave is carried over because it was not reasonably practicable for a worker to take that leave because of the effects of the coronavirus (COVID-19) pandemic, the employer can only prevent a worker taking such carried forward leave on particular days (under regulation 15(2)) where the employer ‘has good reason to do so’. That condition does not apply normally where an employer wishes to prevent a worker taking leave on particular days (see Practice Note: Holiday — When statutory holiday may be taken and the notice requirements).

The guidance refers, without further comment, to that special condition (of needing to have ‘good reason to do so’) with regard to preventing the taking on particular days of leave that was carried over for coronavirus-related reasons.

Requiring workers to take annual leave on particular days

Unlike preventing workers from taking carried-over holiday on particular dates, there are no special requirements that apply to the employer’s right to require workers to take annual leave on particular days; rather, that operates as normal in relation to carried-over leave as it does for any other type of annual leave (see Practice Note: Holiday — When statutory holiday may be taken and the notice requirements).

In this regard, the guidance states as follows:

an employer’s ability to require a worker to take annual leave is unaffected by the ability to carry holiday into future leave years
where it is reasonably practicable for a worker to take annual leave, employers should facilitate this
generally, employers remain able to require workers to take annual leave to ensure that holiday is taken in the leave year to which it relates

Payment in lieu for carried leave

The Working Time (Coronavirus) (Amendment) Regulations 2020, reg 4WTR 1998, SI 1998/1833, reg 14(5)

Under the special amendments related to coronavirus, any leave:

that is carried forward because it was not reasonably practicable for a worker to take that leave because of the effects of the coronavirus (COVID-19) pandemic, and
which remains untaken on the termination of the worker’s employment

must be paid in Iieu on termination. The guidance mentions this special provision.

Furloughed agency workers

The fifth and final section of the new BEIS guidance is headed ‘Furloughed agency workers’. It states as follows:

putting agency workers on furlough under the CJRS does not alter the position as to whether or not such agency workers, including those working through an umbrella company, are entitled to accrue holiday under the Working Time Regulations and/or under their contract
accrual of holiday during furlough:
- where holiday rights exist under the regulations, they remain unchanged when workers are on furlough
- where agency workers are engaged under a contract of employment which sets out their entitlement to holiday, that is 5.6 weeks or more in accordance with the regulations, their contract will continue to operate as before and they will continue to accrue holiday on furlough as they would normally when between or otherwise not working on assignments
- some agency workers on a contract for services may not be entitled to the accrual of holiday or to take holiday under the Working Time Regulations while on furlough because they are not workers or treated as workers under those regulations when between assignments or otherwise not working on assignments. Contracts may nevertheless include holiday provisions which will continue to operate in the same way as they did prior to the furlough period
taking holiday leave and receiving holiday pay during furlough:
- agency workers who have worker status can take holiday they are entitled to under the regulations or their contract of employment while on furlough
- where a furloughed agency worker takes holiday, the employer who has placed the agency worker onto furlough may continue to claim the grant from HMRC
- the grant can cover up to 80% of the worker’s wage cost, with the employer liable for holiday pay above this figure
- employers have the flexibility to control when a worker is able to take leave, using the normal notice periods (see Practice Note: Holiday — When statutory holiday may be taken and the notice requirements). This is the same for agency workers, and employment businesses may refuse a worker to take leave provided this is permitted by the Working Time Regulations and the agency worker’s contract
- agency workers may be able to carry holiday into future leave years (in the same way as other non-agency workers: see Carrying annual leave into future leave years, above)

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