Note - The relationship between furlough and annual leave is unknown as at the date of this note. The updated 4 April 2020 Government Guidance does not deal with the interaction between furlough and annual leave. References to employees within this note also includes references to workers who have the right to statutory holidays provided they are paid through PAYE.

  1. Will employees continue to accrue holiday during furlough leave?

It is likely though not certain that the 5.6 weeks’ leave under the Working Time Regulations 1998 (WTR) continues to accrue during furlough leave.

  1. Where a worker does not take annual leave in the relevant leave year because they were on furlough leave, can they carry it forward to the next leave year?

The government has passed emergency legislation to permit the carry-over of any untaken Working Time Directive (WTD) leave where it was not “reasonably practicable” to take it in the leave year “as a result of the effects of the coronavirus (including on the worker, the employer or the wider economy or society)”.

The leave which may be carried over is limited to the 4 weeks of annual leave guaranteed by Reg.13 WTR as required by the WTD and does not include the additional 1.6 weeks guaranteed by Reg.13A in the UK.

  1. Can leave be taken from furlough?

It is not clear if furlough and annual leave are mutually exclusive.

However, the ACAS published guidance suggests that leave can be taken. If correct, placing an employee on furlough does not provide a bar to that employee taking annual leave.

  1. Should an employee be permitted to take leave of their choosing while on furlough?

Although ACAS suggests this is permissible, HMRC are not obliged to follow ACAS guidance so employers should exercise caution in relying on ACAS as also amounting to HMRC’s position on the effect of taking annual leave during furlough. The risk being that such leave would break the furlough period and mean a claim for reimbursement of furlough pay is rejected.

  1. What about bank holidays provided for in the contract?

Whether bank holidays are taken as leave is generally agreed in the contract of employment. There are four bank holidays during the initial furlough scheme period (10 April, 13 April, 8 May and 25 May). If employees have the contractual right to take bank holidays off as holidays, then this will apply during furlough and the ACAS guidance includes a specific section on the treatment of bank holidays which says:

“Bank holidays are usually part of the legal minimum 5.6 weeks’ paid holiday. Employees and workers must get their usual pay for bank holidays. 

Employees and workers may still be required to use a day’s paid holiday for bank holidays, including when they’re furloughed. If bank holidays are given on top of the 5.6 weeks’ paid holiday, employees and workers should check their contract or talk to their employer about taking this holiday.

If employees and workers usually work on bank holidays but are currently furloughed, they should check with their employer to see if they have to take holiday on that day or if they can take the time off at a later date.

If employees and workers cannot take bank holidays off due to coronavirus, they should use the holiday at a later date in their leave year.

If this is not possible, bank holidays can be included in the 4 weeks’ paid holiday that can be carried over. This holiday can be taken at any time over a 2-year period.”

Theoretically there remains a risk that HMRC could say that even bank holiday leave breaks a period of furlough, although that would seem less likely in the face of such explicit guidance to employers and where bank holidays were fixed without any knowledge of the pandemic. 

  1. Can the employer require leave to be taken during furlough?

Under the WTR an employer may require and direct an employee to take their 5.6 weeks of statutory annual leave guaranteed by the WTR at specific times. Such notice must be at least twice the length of the period of leave that the employee is being ordered to take. Additionally, the contract of employment may give the employer the right to require and direct an employee to take all or part of their holidays at specific times. But how do such rights impact on furlough?

If legally it is possible for leave to be taken from furlough there are arguments against an employer’s ability to require employees to take this leave, namely:

•          that furlough leave, in itself, renders it not reasonably practicable for the worker to take the leave (and the new law on carry over may support this being in the government’s mind);

•          as furlough leave needs to be taken in blocks of three weeks it cannot be interrupted by annual leave; and

•          it would be an abuse by the employer to require annual leave to be taken; if an employer requires employees to take leave from their annual entitlement during furlough it could be argued that they would receive neither additional leave nor additional pay and, so their right to leave is effectively extinguished.

Additionally, and more pragmatically as explained above, the risk is that when the HMRC portal is established it states that annual leave may not be treated as furlough leave and so the pay may not be recoverable from HMRC under the scheme.

  1. Overall?

Some employers may take the view that HMRC have not explicitly excluded holiday pay from the sums that can be recovered. They may choose to permit or direct workers to take annual leave (giving the notice required under the WTR) on the basis that HMRC will pay for it.

However, there is the risk that HMRC will determine that the holiday pay is not recoverable or, worse, that the annual leave has broken the 3 week minimum period of furlough leave such that the furlough pay is not recoverable for the whole of the interrupted 3 week period.

Until the position is clarified, the position of lowest risk is to restrict all leave during furlough. A more balanced approach, but still not ultimately risk free while matters remain unclear as to how the portal will work, would be to require employees to take annual leave on bank holidays which are designated as such by the contract of employment but not to  require employees to take other annual leave during furlough.

  1. Can we require employees to take accrued holiday once the furlough period comes to an end?

Yes, you could require that annual leave is taken once the furlough period comes to an end. However, this is subject to the requirement to give sufficient notice as required under the WTR or any relevant agreement.

Cater Leydon Millard

9 April 2020

This FAQ document provides general guidance only and expert advice should be sought in relation to any particular circumstances.