Can an employee take annual leave while on furlough?
Government guidance onHoliday entitlement and pay during coronavirus (COVID-19)confirms that furloughed employees can take annual leave, without the furlough period being disrupted.
Employers must pay furloughed employees their normal rate of pay for a period of holiday, rather than any reduced amount they receive during the furlough. They must top up the amount they can claim under the Coronavirus Job Retention Scheme.
From 1 July 2020, furloughed employees can work on a flexible, part-time basis for their employer (known as flexible furlough). The employer can claim under the Coronavirus Job Retention Scheme for the hours that the employee does not work and is recorded as being on furlough.
HM Revenue and Customs guidanceon the scheme states that, where an employee is flexibly furloughed, “any hours taken as holiday during the claim period should be counted as furloughed hours rather than working hours”.
It goes on to say that employers should not place an employee on furlough simply because they are on holiday for that period. Therefore, an employer’s decision about whether to furlough an employee should not be influenced by any annual leave, but if an employee takes annual leave during a period covered by a flexible furlough arrangement, the employer should record any hours they were due to work as furlough. It can claim for these hours under the scheme, ensuring that it pays the employee their normal rate of pay for the annual leave.
Many employers that have furloughed employees will not be in a financial position to pay them in full during annual leave. These employers can refuse any requests for annual leave during the furlough period by giving therequired notice. Employees will be able to carry over unused leave in some circumstances.
Where an employer can afford to top up the pay of a furloughed employee, it may consider requiring them to take annual leave during the period of furlough.
Whether or not this can be done in compliance with the Working Time Regulations 1998 (SI 1998/1833) remains uncertain.
When does overtime have to be included in holiday pay?
Holiday pay must be calculated based on the employee’s normal pay. Where an employee normally works overtime, this should be included in the calculation of their holiday pay.
Overtime that the employer is contractually obliged to offer and that employees are required to work must always be included in holiday pay.
InBear Scotland Ltd and others v Fulton and others; Hertel (UK) Ltd v Woods and others; Amec Group Ltd v Law and others [2015] IRLR 15 EAT, the Employment Appeal Tribunal (EAT) held that regular overtime that is not guaranteed, but that employees are required to work when it is offered, must also be included.
There is no definition setting out how regularly overtime must be worked for it to be included, but the general principle is that pay that is “normally received” should be included in holiday pay. If an employee has worked a settled pattern of overtime over a period, payment for that overtime is pay that they normally receive and must therefore be included in holiday pay.
Where there is no settled pattern of overtime, the employer should calculate average pay over a reference period leading up to the period of annual leave, although the courts have not addressed what a suitable reference period would be.
The Court of Appeal addressed the question of whether overtime that is voluntary must be included in the calculation of holiday pay inEast of England Ambulance Service NHS Trust v Flowers and others [2019] IRLR 798 CA. It held that voluntary overtime must be included if it is part of a pattern of work that is sufficiently regular and settled for payments made in respect of it to amount to normal remuneration. This will be for tribunals to decide on the facts of each case.
The right to be paid for non-guaranteed overtime in holiday pay derives from case law of the European Court of Justice, and so applies only to holiday pay for the four weeks’ minimum annual leave under EU law, not to the additional 1.6 weeks provided for by the Working Time Regulations 1998 (SI 1998/1833).
Employers should decide their policy on how to treat the additional 1.6 weeks’ statutory minimum leave and any additional contractual entitlement but may decide to include pay for overtime in all holiday pay to avoid complicating the administration of payments.
Flexible working requests:
When are employers’ decisions discriminatory? While the law on the right to request flexible working has not changed, employers are likely to be seeing a shift in employees’ expectations around flexible working. Some employees who have been working flexibly for a sustained period during the pandemic may wish to make this arrangement permanent. The employee may be able to show that they have continued to perform to the required level, or even exceeded expectations, with these changes in place. Now more than ever, employers need a strong reason for refusing flexible working requests or could find themselves on the losing end of indirect disability, sex, or age discrimination cases.
Image Credit:What does furlough from a job means on a whiteboardby Jernej Furman
used under CC BY 2.0