Holiday entitlement and pay during coronavirus (COVID-19)

What can employers do if their employees have unused leave due to the coronavirus pandemic?

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Written by: alcumus
20th January

During the pandemic, it has not always easy for employees to take leave. For example, they may have been on furlough and their holiday entitlement not used (see later in this article). This has left many employers the headache of what to do with their employees’ unused leave or what can they do to make sure employees take their leave in the holiday year.

Almost all workers, including zero-hour contracted workers and those on irregular hours contracts, are legally entitled to 5.6 weeks’ paid holiday per year (this entitlement is split into 4 weeks derived from EU law and an additional 1.6 weeks from UK law (typically, the 8 recognised and customary public holidays) – although an employer can offer more). The exception to this is people who are genuinely self-employed.

A worker has the same holiday entitlement, regardless of whether they are on sick leave, maternity leave, parental leave and adoption leave, and other types of statutory leave. A worker may request holiday at the same time they are on sick leave but cannot be required to take it while off sick.

Workers who have been placed on furlough continue to accrue statutory holiday entitlements, and any additional holiday provided for under their employment contract. You can use the government holiday entitlement calculator to calculate a worker’s statutory holiday entitlement.

So, what situations has the pandemic thrown up and what are the options for employers?

Taking holiday

Employers can:

  • Require workers to take holiday (perhaps due to the employee refusing to take leave)
  • Cancel a worker’s holiday, if they give enough notice to the worker (for example, there has been an influx of work and the worker is needed)

The required notice periods are:

  • Double the length of the holiday if the employer wishes to require a worker to take holiday on particular days
  • The length of the planned holiday if the employer wishes to cancel a worker’s holiday or require the worker not to take holiday on particular dates

Employers can ask workers to take or cancel holiday with less notice but need the workers’ agreement to do so.

Furloughed workers
Workers on furlough can take holiday without disrupting their furlough. The notice requirements for their employer requiring a worker to take leave or to refuse a request for leave continue to apply. Employers should engage with their workforce and explain reasons for wanting them to take leave before requiring them to do so.
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.

The 8 recognised and customary public holidays

There is no statutory right to time off on the 8 recognised and customary public holiday days in the UK, unless they form part of the employee’s holiday entitlement. Many employers will utilise them this way but if they are a business which operates in an industry that would be open on those days, they will give their employees alternative days off, so they still get their statutory holiday entitlement.  

Furloughed workers
Where a recognised and customary public holiday falls inside a worker’s period of furlough and the worker would have usually worked the recognised and customary public holiday, their furlough will be unaffected by the recognised and customary public holidays.

However, if the worker would usually have had the recognised and customary bank holiday annual leave, there are 2 options:
a. The recognised and customary public holiday is taken as annual leave
b. The recognised and customary public holiday is deferred

Holiday pay

The amount of pay that a worker receives for the holiday they take depends on the number of hours they work and how they are paid for those hours. The principle is that pay received by a worker while they are on holiday should reflect what they would have earned if they had been at work and working.

Holiday pay, whether the worker is on furlough or not, should be calculated in line with current legislation - see the government’s standard guidance, based on a worker’s usual earnings. The underlying principle is that a worker should not be financially worse off through taking holiday.

Furloughed workers
An employer should not automatically pay a worker on holiday the rate of pay that they are receiving while on furlough, unless the employer has agreed to not reduce the worker’s pay while on furlough.

If a worker on furlough takes annual leave, an employer must calculate and pay the correct holiday pay in accordance with current legislation - see the government’s standard guidance. Where this calculated rate is above the pay the worker receives while on furlough, the employer must pay the difference. However, as taking holiday does not break the furlough period, the employer can continue to claim the 80% grant from the government to cover most of the cost of holiday pay.

Carrying annual leave into future leave years

As mentioned, the 5.6 weeks of statutory holiday is split into 4 weeks and 1.6 weeks, and there are some differences in the rules that apply:

  • The 1.6 weeks can be carried forward into the following leave year if a written agreement (usually a contract of employment) exists between the worker and the employer and permits this
  • Generally, the 4 weeks cannot be carried into future leave years, so employers must facilitate these weeks being taken within the relevant leave year

However, under certain circumstances employers must allow the 4 weeks to be carried into future leave years. Where a worker cannot take annual leave due to them being on maternity leave or sick, employers must still allow workers to carry their annual leave forwards. These rights remain unaffected by a worker being furloughed.

Carrying leave forwards: how new legislation has changed the rules
The government passed emergency legislation to ensure businesses have the flexibility they need to respond to the coronavirus pandemic and to protect workers from losing their statutory holiday entitlement (The Working Time (Coronavirus) (Amendment) Regulations 2020, laid before Parliament on 27 March 2020). These regulations enable workers to carry holiday forward where the impact of coronavirus means that it has not been reasonably practicable to take it in the leave year to which it relates.

Where it has not been reasonably practicable for the worker to take some or all of the 4 weeks’ holiday due to the effects of coronavirus, the untaken amount may be carried forward into the following 2 leave years. When calculating how much holiday a worker can carry forwards, employers must give workers the opportunity to take any leave that they cannot carry forward before the end of the leave year.

Furloughed workers
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 (in most cases at least - see Taking holiday on assessing whether a furloughed worker can take holiday). However, to do so they must be paid the correct holiday pay which is likely to be higher than the rate of pay that will be covered by government grants, with the employer making up the difference - see Holiday pay.

If, due to the impact of coronavirus on operations, the employer is unable to fund the difference, 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 annual leave is lost at the end of the next 2 leave years.

Handling leave that has been carried forward
When a worker carries leave forwards due to the coronavirus, they will continue to accrue holiday in the next leave year. As such, they will have 2 entitlements:

  • The holiday that has been carried forward that must be taken in the next 2 leave years
  • The entitlement that relates to the new leave year

Holiday pay for leave carried forward should be calculated in the same way as set out in Holiday pay.
To ensure that workers do not lose the holiday entitlement that they are entitled to, it is best practice for employers to inform workers of both the need to carry forward, and how much leave will be carried.

Requiring workers to take annual leave
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.

Payment in lieu for carried leave
Carried leave is still subject to the usual rules around payment in lieu. An employer must facilitate the worker taking their annual leave and not replace it with a financial payment (known as payment in lieu).
However, if the worker leaves employment, the employer must pay the worker for any untaken leave. This will include the carried leave under the coronavirus exemption, along with any leave that the worker has accrued in the relevant leave year.

If you need support, or have any queries about absence management then please don't hesitate to contact Alcumus PSM’s HR team on [email protected] or call 01484 439930.
 
Alcumus PSM (People & Safety Management) specialises in human resources (HR) and health and safety (H&S) consulting for small and medium-sized enterprises.
 
Written by Anil Champaneri, Senior HR Consultant