New HMRC guidance clarifies interaction between holiday and furlough

As the Coronavirus Job Retention Scheme goes live, HMRC provides helpful guidance on calculating claims.

The new guidance, published on 17 April sets out worked examples of claims in different scenarios and links to an online calculator which can be used to generate the key information employers will need to make a claim. The calculator is still under development at the time of writing can only be used to calculate figures for employees who are paid the same amount in each pay period. Detail is also provided on calculating the employer National Insurance contributions and pension contributions which can be claimed for furloughed employees. A step by step guide for employers has also been published to assist with making claims under the Job Retention Scheme. 

As of yesterday, the online portal to make a claim under the scheme is available for employers to use.

Wrigleys is presenting a webinar on the Coronavirus Job Retention Scheme on 23 April 2020. Please see https://www.wrigleys.co.uk/events/ for details of how to register.

Scheme extension to 30 June and collective redundancy consultation

The scheme has been extended until the end of June 2020. This is a helpful change for employers who may be contemplating a significant number of redundancies once the scheme ends. This is because under collective redundancy consultation rules, employers must begin consultation with employee representatives at least 45 days before the first dismissal (where there are 100 or more potential dismissals within a 90 day period) and at least 30 days before (where there are 20 or more potential dismissals within a 90 day period). Employers contemplating more than 100 redundancies at the beginning of June would have had to start collective consultation at the end of last week.

However, employers should be aware of their obligations to consult collectively (and individually) on proposed redundancies and plan ahead to try to ensure the relevant processes can be followed as far as is reasonably practicable in the circumstances.

Holiday and furlough

Some long-awaited detail is provided on the interaction between holiday and furlough. However, the guidance states: "during this unprecedented time, we are keeping the policy on holiday pay during furlough under review". Employers should therefore be alert to further updates and seek legal advice before making assurances to staff concerning holiday and holiday pay.

Holiday leave will accrue during furlough

After a period of uncertainty and speculation, the guidance clarifies that annual leave will continue to accrue in accordance with the employment contract. It states that employers and employees can agree to change contractual holiday entitlement as part of the furlough agreement but that such entitlement cannot be less than the statutory minimum of 5.6 weeks' holiday per year. 

Workers can take holiday while on furlough

The guidance makes clear that holiday can be taken during furlough. We understand this to mean that a day's holiday will not break the furlough period. Where workers have taken holiday (for example Easter bank holidays) in the last few weeks, this should not therefore impact on eligibility for the claim.

Time taken as holiday during furlough will need to be paid at the normal rate (i.e. the pre-furlough rate). Where staff are salaried, this will be the normal salary rate. Where staff have variable hours, employers should use the new 52-week reference period (in force since 6 April 2020) to work out average remuneration. (See separate guidance on calculating holiday pay for workers on variable hours for further help with this.)

This means that employers will have to pay the additional 20% of normal pay to staff for any time taken as annual leave. This will apply to the statutory minimum of 5.6 weeks' leave. Any additional contractual holiday leave taken during furlough should be remunerated in accordance with the employment contract.  

Employers can restrict when holiday is taken during furlough

The guidance states that employers can, where there is a business need, limit the taking of holiday. For example, this might be because they are not able to fund the top up in pay which would be required where holiday is taken.

The guidance is silent on whether employers can insist that some holiday is taken during furlough. There is some debate amongst employment lawyers on this point. It is our view that the normal statutory rules are likely to continue to apply: employers can require workers to take holiday at particular times as long as they give twice as much notice as the length of the holiday. For example, an employer could require a worker to take 5 days' holiday but must give at least 10 days' notice of that requirement. There are advantages to insisting employees take annual leave while furloughed rather than later in the year because, during the furlough period, annual leave will be subsidised by the government grant. In addition if employers plan redundancies once the CJRS has ended they would not be faced with the cost of paying out for accrued but untaken leave.

However, if the courts decide aspects of the working time regulations do not apply to furlough leave, employees who were required to take holiday by their employer may be able to claim their days back or, if they have left the organisation, claim the financial loss suffered because they were not paid for accrued untaken leave.

Must an employer top up pay for bank holidays?

As set out above, the basic principle is that workers should receive normal pay (rather than 80% of pay) for time taken as holiday during furlough. However, the guidance states that employers have the option of giving the employee a day's holiday in lieu of a bank holiday which would normally be taken as leave. In that way, the employee will be able to take a day (at full pay) later in the year and the employer will not have to top up pay for the bank holiday at this stage.

Further questions

HMRC has stated that it intends to make payments to employers by 30 April if claims are made on or before 22 April. There is no doubt that further questions will arise as employers apply through the portal and come across novel problems and issues as they do so.

In particular, we recommend that employers take legal advice on documenting the furlough agreement as there are specific requirements set out for this in the legislative scheme underpinning the Job Retention Scheme which are not included in the guidance.