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18 May 2020

Furlough Schemes and Holiday Pay


We have now had clarification on the Gov.UK site, which was in line with the information embraceHR had already published, which summarised the key points regarding holiday leave from the ACAS website (as directed by HMRC) as well as clarification from renowned and trusted employment law sources, including CIPD.

Please note that this information is correct up to the time of publication (19.04.2020).  We will continue to review Gov.UK, ACAS, HMRC and other trusted employment law sources.  However, it is interesting to note that on their own site, the Government say "During this unprecedented time, we are keeping the policy on holiday pay during furlough under review."  This means that we need to key an eye on possible further changes.  

On Friday 17 April, the Government announced that the Furlough Leave scheme was being extended from 31.05.2020 to the end of June 2020.  Four Bank Holidays fall within the current duration of the scheme (10 & 13 April, 8 & 25 May), so it is important that you understand how pay and leave needs to be treated for these dates in particular.  On 12th May the scheme was further extended to the end of October 2020, meaning another Bank Holiday (in August) will fall under the scheme. 


Leave Accrual and Balances

In most instances, employees should use their statutory annual leave (5.6 weeks for full-time workers) in the current leave year.

However, the Government has introduced a temporary new law allowing employees and workers to carry over up to 4 weeks’ paid holiday into their next 2 holiday leave years.  This law applies for any holiday the employee (or worker) does not take because of coronavirus (e.g. due to illness, being asked to work or being asked to furlough).  This law does not affect any agreements already in place from employers regarding carried over leave.

If furloughed workers do not book any holiday time during the furlough period, annual leave should continue to accrue at the statutory rate of 5.6 weeks per year (subject to how you have drafted your Furlough Leave agreement letter) under the Working Time Regulations 1998, or in accordance with their contractual accrual.

If an employee or worker leaves their job or is dismissed and has carried over paid holiday because of coronavirus, any untaken paid holiday must be added to their final pay ('paid in lieu').


Taking Holidays during Furlough Leave

Furloughed workers can still request and take their holiday in the usual way, if their employer agrees.  This includes bank holidays.  There are five bank holidays during the current furlough scheme period (10 April, 13 April, 8 May and 25 May, plus 31 August).

The employee may choose to do this, for example, because they want to top up their pay to their usual 100% amount where they are currently in receipt of reduced pay (noting if an employee's pay is variable, the calculation is based on average pay received in the previous 52 weeks, therefore those with high levels of SSP or maternity leave in that period may benefit even further in these circumstances).  Put simply, if an employee wants to take holiday in the furlough period, the employer should pay their normal pay (this is in accordance with Working Time Regulations).  

The benefit to the employer of someone taking leave during furlough periods is that employees, whilst continuing to accrue leave whilst on furlough, will not then have even greater amounts of leave left to take when this is all over, which might cause further issues for employers trying to get businesses back on their feet.

There is nothing in the latest guidance to suggest holiday breaks the furlough period and the Government state that employers "will be obliged to pay additional amounts over the grant", indicating the 80% cost can be reclaimed - currently, there is no specific example showing this on the new pages but there is an example to show how you calculate pay where you have done a 'top up' (link).  

N.B. As stated above, furloughed workers must get their usual pay*, in full, for any holiday they take, including bank holidays. 

Holiday pay counts as a regular payment that you are obliged to pay your employees and should, therefore, be claimable.  Any top-ups (i.e. the 20% difference to the 100% plus added NI and pension costs) paid to furloughed employees are not recoverable.

From April 2020, normal remuneration is assessed over an average of 52 weeks includes regular or compulsory overtime, allowances, contractual commission and bonuses.

Although it is more expensive to have an employee on holiday rather than on furlough, the advantage for the employer is that the employee’s remaining holiday entitlement between now and the end of the holiday year is reduced.

Employers can still require employees and workers to take paid holiday on a bank holiday – this will usually be stipulated in the contract of employment and can also be referred to via custom and practice (i.e. where this is typically taken as a holiday annually).  Alternatively, the employer can choose to treat the bank holiday as a 'normal' furloughed day and give the employee a day of holiday in lieu.  

If bank holidays cannot be taken off due to coronavirus (for example in the case of a critical worker), employees and workers should use the holiday at a later date in their leave year.  Bank holidays can be included in the temporary carry forward extension period.  


Previously booked holidays

An employee may (due to the impact of coronavirus) no longer want to take time off they had previously booked.  The employer can however still insist the employee still takes the time off, but it’s best to reach a mutual agreement.

If the employee wants to change when they take this time off, they'll need to get agreement from their employer.  Make sure you update holiday records accordingly.


Requiring staff to take or cancel holiday

The Government have confirmed that employers will have the flexibility to restrict when leave can be taken (as a result of the crisis) if there is a business need and that this applies both during the furlough and the recovery period.  

Ordinarily in employment law, employers do have the right to tell employees and workers when to take holiday, for example on return from furlough leave, or as a more common example, requiring employees to save some of their leave accrual for an annual shutdown (e.g. at Christmas).

To do this, you must give employees at least twice as many days notice before as the amount of days they need people to take, e.g. if you want to close for a week, you should give 2 weeks notice.  Best practice is to get the employees agreement to this, rather than impose it on them, however, this is not mandatory.

Employers can also cancel pre-booked paid holiday.  If they decide to do this, they must give employees (and workers) at least the same number of days’ notice as the original holiday request but do bear in mind someone may have made bookings and/or payments, so be reasonable with this type of action.



When furloughing employees, if the workplace has a recognised trade union, or there are employee representatives who work with the employer on these matters, the employer should involve them in agreeing changes.  You should be engaging in collective consultation if this is the case and you plan to furlough more than 20 employees.

Normal employment laws continue to apply when furloughing employees, therefore, along with the Working Time Directive, equality and discrimination laws will still apply and so employers should be aware of certain risks, for example, by choosing a disproportionate amount of men or women in their furlough selections, which could lead to discrimination claims later.

And finally, as I have stated above, the Government say that they are keeping the policy on holiday pay during furlough under review, so make sure you stay up to date with changes.  


Contact Embrace HR if you would like to discuss this further or need help with furloughing employees and holiday pay queries.  


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