May 18, 2020

COVID-19 Employment: Update on employee holiday issues

The government has published new guidance on holiday entitlement and pay, providing some clarity on many of the issues employers have been asking during the COVID-19 pandemic. Although the guidance has no force in law (and an employment tribunal would not be required to follow it when deciding holiday disputes) it is nevertheless useful for employers to bear in mind when approaching holiday issues. In this article we look at some of the frequently asked questions that employers have about employee holiday during the COVID-19 pandemic, with the new guidance in mind.

With holiday plans cancelled or postponed, many people will want to save their holiday until normality returns so that they can enjoy the trips they planned. But employers will be anxious to ensure that holidays are taken when the business is quiet, not when business is picking up, So how does the employer approach the holiday issue and what are the employer's rights during the pandemic? In particular, what are the issues around annual leave and furlough?

An earlier version of this article was published on 9 April 2020. This is updated below to take account of the new guidance on holiday entitlement and pay during coronavirus (COVID-19) (the Holiday Guidance).

If an employee asks to cancel pre-booked holiday, do we have to agree?

One of the effects of COVID-19 has been the impact on everyone's ability to travel, and many people have seen their holiday plans cancelled or postponed. This has led to some employees asking to cancel holiday that they had already booked so they can use it at a later date.

Unless you have agreed otherwise (such as in the employee's contract of employment or a collective agreement) an employer does not have to agree to an employee's request to cancel previously booked holiday. If the employee wants to take leave on different dates, they must agree this with you in the usual way.

Given it is not clear when people will be able to travel freely again, there is a risk that allowing employees to cancel pre-booked holiday may mean that many employees end up with a lot of accrued holiday. This may well create operational difficulties for your business if everyone wants to take their stored up holiday at the same time, perhaps when your business is just getting back on its feet.

From a practical and business perspective, if you are seeing a downturn in your business you may prefer employees to take holiday while they are quieter. There is also a broader issue of the importance of workers being encouraged to take regular breaks from their work even during this time, including by taking holiday. These are all points for you to consider.

Can we require our employees to take holiday?

You have the right to tell employees when to take their holiday. You could, for example, decide to close for a week and tell everyone to use their holiday entitlement. You can also require employees to take their holiday during furlough leave.

If you decide to do this, you must give your staff notice. The notice must be twice as many days as the days you're asking them to take as holiday (unless the contract says something else). For example, if you want to close for 5 days, you should tell everyone at least 10 days before the first day on which you want the holiday to begin. You can ask workers to take holiday with less notice but you need the workers’ agreement to this.

You should explain to employees clearly why you need to do this and try and resolve anyone's worries about how it will affect their holiday entitlement or plans.

An employer may be able to require a worker to take holiday while on furlough. However, the position is not entirely clear cut since the Holiday Guidance suggests that 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. Employers should therefore tread carefully and listen to worker concerns before taking any action to force furloughed workers to take holiday during furlough leave.

What are the new rules about holiday carry over?

Workers who have not taken all of their holiday entitlement due to COVID-19 will now be able to carry some of it over into the next 2 leave years, under new measures introduced by the government.

These measures are mostly aimed at relieving pressure on organisations employing key workers who are faced with more work that needs to be done as a result of COVID-19, but they apply to all organisations. It means workers can postpone taking some of their holiday entitlement without losing out on it.

They mean that all employers affected by COVID-19 have the flexibility to allow workers to carry over leave, at a time when letting workers take all their holiday could leave them short-staffed. This is particularly the case as some employers are experiencing high levels of sickness absence combined with heavy workloads.

When do the new holiday carry over rules apply?

They apply to all businesses, and to the 4 weeks' basic holiday entitlement under the Working Time Regulations 1998, allowing employees to carry over up to 4 weeks’ holiday into the next two holiday years.

Currently, workers are entitled to a statutory minimum of 5.6 weeks holidays each year. For most full time employees who work a normal Monday to Friday week, this amounts to 28 days' holiday including bank holidays each year. Before this new measure was introduced, the first 4 weeks of this entitlement could not be carried between leave years, meaning workers could lose this holiday if they did not take it.

The new rules apply where at the end of the holiday year it has been “not reasonably practicable” for a worker to take some or all of this leave “as a result of the effects of coronavirus (including on the worker, the employer or the wider economy or society)”.

The Holiday Guidance provides guidance on what "not reasonably practicable" means.  When considering whether it was not reasonably practicable for a worker to take leave as a result of the coronavirus, so that they may carry untaken holiday into future leave years, 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 Holiday Guidance suggests that for furloughed workers, carry-over would rarely be justified if they were able to take holiday during the furlough period (although it might be justified if the employer could not afford to top up their pay). However, employers should be cautious when relying on this part of the guidance as it appears to be at odds with the spirit of the new rules and the Acas guidance, and ignores the fact that some workers may be contractually bound by their furlough agreements not to take holidays during furlough.

The Holiday Guidance also provides that employers are expected to 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 new rules also say that an employer can only require a worker not to take their carried over holiday on particular days where it has “good reason” to do so. Normally employers can prevent an employee from taking holiday on their requested dates by giving advance notice of at least as many days as the holiday that is being refused, e.g. 3 days’ notice to refuse 3 days' holiday. The need to have a good reason is an extra requirement for holiday that has been carried over due to COVID-19.

Holiday and furlough leave

There are a number of questions and uncertainties around holiday and furlough leave.

  • Does holiday entitlement accrue during furlough?

Yes it does. This is because employees are still employed while furloughed so their holiday entitlement should accrue in the usual way. This is confirmed in the Holiday Pay Guidance and the government guidance on the furlough scheme.

In order to reduce costs during these difficult times, some employers may consider asking their employees to agree that for the current holiday year, any enhanced contractual holiday beyond the statutory minimum of 5.6 weeks per year is reduced to reflect the fact that they have been on furlough, but employees will still be entitled to their statutory holiday entitlement. This may be difficult though in large workforces where some employees may already have exceeded their statutory entitlement for the current holiday year.

  • What should we pay staff who take holiday during furlough?

There has been some uncertainty over whether staff on furlough should be paid their normal pay or their furlough pay, which may be the reduced rate of 80% of their pay subject to a cap of £2,500. The Holiday Guidance makes it clear that workers must receive their usual holiday pay in full.  Some employers may therefore prefer that their workers don't take holidays during furlough leave.  In particular, for some workers, such as those who are paid mostly by discretionary bonuses,  commission or overtime, their usual holiday pay may be considerably higher than their basic furlough pay. This is because furlough pay which can be recovered under the scheme does not include discretionary payments, whereas the law requires "normal remuneration" (which includes regular commission or overtime) to be taken into account when calculating holiday pay.

You can claim for holiday pay under the scheme, but it is limited to the amounts covered by the grant (i.e. it would be subject to the caps that apply) so employers may need to cover the difference between the furlough pay and the worker's usual holiday pay

  • Can employees take holiday while on furlough?

Yes they can and this does not break their period of furlough leave. As the scheme has been extended until October 2020, employers may be keen to ensure that workers use up their holidays during furlough leave rather than saving it up until they return or carrying it forward into the next holiday year.  However, as workers must receive their usual holiday pay in full during furlough, employers may have a stronger business need to avoid these extra costs and so may wish to require staff to postpone holidays until they return from furlough.

There are a number of bank holidays which fall during the period that the furlough scheme is running in April, May and August.  Many contracts of employment designate bank holidays as annual leave. Employers must pay normal pay, rather than furlough pay for bank holidays. That being so, employers may wish to cancel any annual leave including bank holidays  if there's enough time to give the appropriate notice.  The leave can then be carried forward to the next holiday year if it's not practicable to take it during the current holiday year.  

The government guidance on the furlough scheme provides that if employees usually work bank holidays their employer can agree that this is included in the government grant. The guidance also provides that if the employee usually takes bank holiday as leave, their employer should either top up their pay to their usual holiday pay or give the employee a day off in lieu. It is not entirely clear from the guidance that the day's pay (at the furlough rate) for the bank holiday taken as leave is recoverable from the scheme but this appears to be consistent with the scheme's purpose.

If you have any questions or would like advice on these issues, please get in touch with your usual Clyde & Co contact.

For more Coronavirus (Covid-19) information please see our Coronavirus hub here.