The effect of COVID-19 on holiday entitlement and pay

14 May 2020

The department for Business, Energy and Industrial Strategy (BEIS) has published guidance relating to how holiday entitlement and pay will be treated during the coronavirus crisis, and how it differs from the standard holiday entitlement and pay guidance.

The guidance is aimed at employers with the intention of helping them to understand their duties in terms of workers who continue to work and also those who have been placed on furlough.

Employers and workers should address individual contracts and if necessary, seek the relevant independent legal advice.

Holiday entitlement

The majority of workers are entitled to 5.6 weeks’ worth of paid holiday on an annual basis. There is an exception to this in those who are self-employed.

The statutory 5.6 weeks is split into four weeks derived from EU law, and an additional 1.6 weeks in UK law. The guidance relates to the UK’s legal minimum entitlement of 5.6 weeks. This is the minimum requirement, but many employers may offer additional holiday that extends past that point. This will be detailed within an employee’s contract of employment.

The entitlement remains unchanged regardless of whether an individual is on sick leave, parental leave or any other form of statutory leave. A worker can request holiday at the same time as they are on sick leave but cannot be forced to take holiday while off sick.

Workers who have been placed on furlough continue to accrue statutory holiday entitlements throughout the period in which they are placed on furlough, and also any additional holiday entitlement laid out in their contract of employment.

Taking holiday

Employers have the ability to require workers to take holiday, and to cancel a worker’s holiday, where sufficient notice is given to the worker.

The mandatory notice periods are:

  • Double the length of the holiday if the employer wishes the worker to take holiday at a specific time
  • The length of the planned holiday where the employer wishes to cancel a worker’s holiday or requires the worker not to take holiday on particular dates

Employers can request that workers take or cancel holiday with less notice, but the worker must agree to this.

The notice periods are in advance of the first day of the holiday, and the notice must be given prior to the notice period commencing. To put this into practice, if an employer wanted to stop a worker from taking a week’s holiday, they would have to give notice earlier than one week before the first day of that holiday. When calculating the notice period, any uninterrupted period of holiday counts as a single period. The rules on notice periods can be amended by written agreement between the employer and the worker.

Workers on furlough are entitled to take holiday, and for it to have no effect on their furlough. The mandatory notice periods still apply.

If employers would like workers to take annual leave during their period of furlough, they should discuss this with them before requiring them to do so. Employers should also consider if there are any restrictions employees are under, for example, if they must socially distance or self-isolate, as this could potentially stop the worker from resting and relaxing, which are the purposes of taking holiday.

Bank holidays

Employers have the option to include bank holidays as part of a workers’ statutory holiday entitlement, but they do not have to. Employers can instruct workers who would ordinarily take bank holidays as holiday to work instead, as long as they use the standard notice periods. Workers are still entitled to the statutory holiday entitlement for the year, so employers need to consider this.

For workers on furlough, where a bank holiday falls within their period of furlough and the worker would have usually worked that bank holiday, their furlough is unaffected by it. If the worker would ordinarily have their bank holiday as annual leave, then there are two options:

  • If the employer and worker are in agreement that the bank holiday can be taken as annual leave while on furlough, the employer must pay the correct holiday pay
  • If the employer and worker are in agreement that the bank holiday will not be taken as annual leave at that time, then the worker must still receive the day of annual leave that would have been received. The leave can be deferred to a later date, but the worker must still receive their full holiday entitlement

Holiday pay

The fundamental principle behind holiday pay is that a worker should receive pay when they are on holiday to reflect pay that they would have received had they been at work and working. The pay a worker receives will depend on how many hours they work, and how they are paid for those hours.

Holiday pay for those on furlough and also for those who aren’t, should be calculated in alignment with current legislation and based on a worker’s usual earnings. Where a worker has regular hours and pay, holiday pay is calculated on these hours but if they have variable hours or pay, then the holiday pay is calculated using an average of the previous 52-weeks’ worth of remuneration. Weeks in which there was no remuneration are discounted from the calculation.

Where workers are furloughed and taking annual leave, the employer must still calculate and pay holiday pay in accordance with legislation. If this is above the amount that employees receive while on furlough, then the employer must pay the difference but can continue to claim the 80% grant from the government to cover some of the cost of the holiday pay.

Carrying annual leave forward

The 5.6 weeks of statutory holiday is split out into four weeks and 1,6 weeks and there are differences in the rules that apply. 1.6 weeks can be carried forward into the following leave year where there is a written agreement between the worker and the employer. Four weeks, however, cannot be carried into future leave years so these weeks must be taken within the year.

In some scenarios, employers must allow the four weeks entitlement to be carried into future leave years. If a worker cannot take annual leave as they are on maternity leave or off sick, they are entitled to carry their annual leave forwards. These rights remain irrespective of whether a worker is furloughed or not.

The government has passed new emergency legislation - The Working Time (Coronavirus) (Amendment) Regulations 2020, laid before Parliament on 27 March 2020) - which will mean that workers will be able to carry holiday forward where the impact of coronavirus has meant that it has not been reasonably practicable for them to take it in the leave year to which it relates. This applies to the four weeks’ worth of holiday, and it can be carried forward to the following two leave years. When calculating what holiday a worker can carry forwards, employers must give workers the opportunity take any leave that they cannot carry forward before the end of the leave year. The regulations allowing the holiday to be carried forward have been mirrored in Northern Ireland - The Working Time (Coronavirus) (Amendment) Regulations (Northern Ireland) 2020, but took effect from 24 April 2020.

When considering whether it was reasonably practicable for a worker to take leave due to coronavirus, employers should consider various factors, such as:

  • If the business faced increased demand due to coronavirus that would require workers to continue to work
  • How far the business’ workforce was disrupted by coronavirus and the options available to the business to provide temporary cover for essential duties
  • The health of the worker and how soon they need to take a period of rest
  • 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
  • How much the worker taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation
  • If the remainder of the workforce are available to provide cover for the worker taking leave

Employers should do everything reasonably practicable to allow workers to take as much of their leave as possible in the year to which it relates, and it is best practice for them to give workers to the opportunity to take holiday at the earliest practicable opportunity.

It is unlikely that workers who are on furlough will need to carry forward statutory annual leave, as they have the right to take it during the period of furlough. As previously discussed, employers will be required to pay the correct holiday rate which is likely to be higher than the amount they can claim through the Coronavirus Job Retention Scheme (CJRS), so they must make up the difference.

If the employer is unable to fund the difference this would make it not reasonably practicable for the worker to take their leave, meaning that they could carry their annual leave forwards. The worker must still have the opportunity to take their annual leave, and to receive the correct amount of holiday pay before the carried annual leave is lost at the end of the next two leave years.

Examples of what may be reasonably practicable:

  • A worker has two weeks of holiday left and their leave year ends in two months. A significant proportion of the employer’s workforce is unable to attend work during those two months due to coronavirus. The employer reviews the steps it could take to manage the two month period and this highlights the fact that it is not reasonably practicable for the worker to take both weeks of holiday in the reminder of the leave year. The employer and the worker are in agreement that one week of leave will be taken as part of the leave year and the additional week will be carried forwards to be taken as early as possible
  • A worker has just commenced a new leave year so had their full entitlement to take over 12 months. Their employer experiences a surge in demand that is expected to last for a period of three months. The employer and the worker agree that it would not be reasonably practicable for the worker to take holiday in the three months in which demand had decreased but that it will be possible for the worker to use their full entitlement in the remainder of the leave year, so there is no requirement to carry holiday forwards

Where workers carry leave forwards due to coronavirus, they continue to accrue holiday in the following leave year, so they will have two entitlements. They are the holiday that has been carried forward to be taken in the next two leave years, and the entitlement relating to the new leave year.  Holiday pay for leave carried forward should be calculated in the same fashion as the standard calculations for holiday pay.

A useful example illustrates this:

  • Due to coronavirus, a worker carries two weeks of holiday into their next leave year. For that leave year, they will have a total of 7.6 weeks of statutory holiday entitlement, consistent of the two weeks carried forward and the 5.6 weeks they are entitled to in the new leave year.

When a worker with these two entitlements takes holiday, it would be best practice to allow the worker to take holiday from whichever entitlement expires first. They should be entitled, in this scenario, to take the holiday they are entitled to in the new leave year before taking the carried forward holiday as that lasts for a period of two years.

Workers must be allowed by their employer to take carried forward holiday, and they must have good reason for refusing any holiday requests under this entitlement. Employers can request that workers take their carried forward holiday as opposed to their regular entitlement.  The employer must, however, still ensure that the worker receives their full regular entitlement in the leave year to which it relates.

Where carried forward leave is taken into a further leave year, the employer must allow the worker to take their leave within that later year.

There is no requirement to give workers notice they will be able to carry holiday forward if they do not take it but it is unlawful for businesses to prevent workers from taking holiday that they are entitled to. Therefore, to ensure that workers do not miss out on their holiday entitlement, best practice is for employers to advise workers of the need to carry forward, and how much leave will be carried forward.

Where it is reasonably practicable for a worker to take annual leave, employers should facilitate this, and the employer’s ability to require a worker to take annual leave is unaffected by the ability to carry forward holiday. Broadly, employers remain able to require workers to take annual leave to ensure that holiday is taken in the leave year to which it relates.

An employer must let a worker take their annual leave and not replace it with payment in lieu. Where a worker leaves employment, the employer must pay the worker for any untaken leave. This will include any leave carried forward due to the coronavirus, and any leave that the worker has accrued in the relevant leave year. The payment for this untaken leave is based on a statutory formula laid out in the Working Time Regulations (WTR).

Furloughed agency workers

Any agency workers, inclusive of those working through an umbrella company, are still entitled to accrue holiday under the WTR, and/or their contract. This applies even if they are placed on furlough and a claim is made for them under the CJRS.

Workers will continue to accrue holiday whilst on furlough. Where agency workers are engaged under a contract that sets out their entitlement to holiday, they will continue to accrue holiday on furlough as they ordinarily would when between, or otherwise not working, on assignments.

Some agency workers on a contract for services may not be entitled to accrue or take holiday under the WTR when on furlough because they are not 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 before the furlough period.

Agency workers with worker status can take the holiday they are entitled to under the regulations or their contract of employment while on furlough. The employer placing an agency worker  on furlough may continue to claim the grant from HMRC for 80% of the figure, but the employer must pay the amount to top the pay up to 100%.

Employers can control when a worker takes leave if they observe the correct notice period, and the same applies to agency workers. Similarly, businesses may refuse holiday requests of agency workers.

Agency workers may be able to carry holiday into future leave years.

The information in this article is accurate at the time of publication. For all the latest information, news and resources on how the COVID-19 pandemic is affecting payroll professions, visit our Coronavirus hub.