The development by HMRC of its Coronavirus Job Retention Scheme (“the Scheme”), now extended in its operation until the end of June 2020, has involved numerous iterations of its guidance for employers and employees, the latest of which were issued on Friday 17 April, 2020.
The updated guidance addresses holiday entitlement and holiday pay during periods of furlough for the purposes of the Scheme – which has been one of the most challenging issues for employers seeking to utilise the Scheme over the weeks since its announcement – along with some other points of detail.
Guidance for making claims
The portal through which claims can be made under the Scheme goes live on Monday 20 April, 2020. On Friday 17 April, 2020 the Government issued two further publications which will be important for employers making claims under the Scheme - guidance for employers on eligibility and how much they can claim under the Scheme and a “step by step” guide for employers explaining the information that employers need to provide to claim for their employees’ wages.
Furlough and holiday
The Government’s guidance on holiday and furlough provides some clarification of the Government’s view of the answers to various questions that have been vexing employers since the Scheme was announced. The Government has indicated that it is keeping the issue of holiday pay during furlough under review so there may be further guidance to come. In the meantime, in the light of and reflecting this new guidance, we address the most common questions arising in relation to this issue.
Do employees continue to accrue holiday during furlough?
Yes - employees will continue to accrue holiday, in line with their statutory entitlement to 5.6 weeks’ annual leave, during a period of furlough. What happens in respect of any additional contractual annual leave entitlement can, it appears, be addressed in the documentation setting out the terms that will apply during the period of furlough and any variations that are being made to the individual’s contract of employment.
Can an employee use annual leave whilst on furlough?
The guidance states that employees can take holiday whilst on furlough. This provides welcome clarity as there was some concern previously that taking leave would bring a period of furlough to an end (and potentially nullify any previous period of furlough of less than three weeks, which is the minimum required furlough period under the Scheme).
What should an employee be paid in respect of any holiday taken during furlough?
The guidance states that holiday should be paid at an employee’s normal rate of pay in line with the requirements of the Working Time Regulations (WTR) and refers specifically to the employee’s “usual holiday pay”. On this analysis, if an employer has reduced employees’ pay to 80 percent (in line with the amount that can be reclaimed under the terms of the Scheme), it should pay employees the additional 20 percent of their normal pay in respect of any statutory holiday employees elect to take. For those employees who receive variable pay, in line with the WTR, holiday pay should be calculated on the basis of the average pay that employees received in the previous 52 working weeks. Employers will not be able to claim this top-up under the Scheme.
Can employers vary employees’ entitlement to holiday during furlough?
The guidance for employees acknowledges that employers can vary what it somewhat misleadingly refers to as "holiday pay entitlement" as part of the furlough agreement. However, this will only be in respect of the contractual element of annual leave over and above the statutory entitlement of 5.6 weeks and employees must consent to such a change.
Can an employer direct employees to take annual leave during a period of furlough?
The guidance confirms that employers will have the flexibility to restrict when leave can be taken if there is a business need and that this applies for both the furlough period and what is described as the “recovery period”. It is difficult to envisage circumstances in which employers would have a business need to restrict employees from taking annual leave during furlough but they may well need to restrict the number of employees wanting to take annual leave when lockdown ends.
The guidance does not address the issue of whether an employer can require an employee to take annual leave during a period of furlough. Despite this uncertainty, some employers are requiring employees to take their accrued annual leave whilst furloughed. If they do, they should ensure that employees receive 100 percent of their normal pay (at least in respect of any statutory entitlement to annual leave which is taken). In the absence of clarification from the Government, there remains a risk that employees who are directed to take leave during furlough will subsequently claim that they were unable to use the leave for the purpose intended under the Working Time Directive (from which the WTR derive) i.e. to provide a period of rest and relaxation and that they should be permitted to take it at a later date. Alternatively, in the event that their employment is terminated at the end of the furlough period, employees may still claim that they should receive a payment in lieu of the annual leave that continued to accrue during furlough.
What happens in respect of bank holidays during a period of furlough?
The guidance indicates that, for employees who usually work bank holidays, the employer can agree with the employee that this is included in the grant payment i.e. employers will not be required to top up pay in respect of these days as they would be normal working days. Employers may wish to consider addressing this in their furlough documentation, particularly given the forthcoming bank holidays in May. However, for those employees who would usually take bank holidays as annual leave, employers will need to ensure that employees receive 100 percent of their normal pay in respect of these days. Alternatively, employers can grant a day of holiday in lieu of a bank holiday.
Whilst the updated guidance does not resolve some ongoing uncertainties arising in relation to the operation of the Scheme – such as its application in relation to those on sick leave and unpaid leave – it does address some other issues as follows.
An issue of concern has been whether employees need to consent to being furloughed. This is clearly the most prudent approach from an employment law perspective. However, for the purposes of claims under the Scheme the position is not clear. The guidance states that employers must “confirm in writing to their employee” that they have been furloughed, that “if this is done in a way that is consistent with employment law” then that will constitute valid consent for the purpose of the scheme and that “the employee does not have to provide a written response”. In contrast, the Treasury Direction (which sets out the legal basis for the Scheme) requires a furloughed employee to “have agreed in writing (which may be in an electronic form such as an email) that the employee will cease all work in relation to their employment”. Formal documented consent is clearly (now) the preferable approach given this lack of consistency.
It is now made clear that, in order for those fixed-term employees whose contracts will expire during the operation of the Scheme to continue to qualify in respect of any extended term, that extension must be implemented before the engagement ends.
The updated guidance clarifies that employers must retain for the purposes of the Scheme records of the amount claimed for each furloughed employee and the period for which the employee is furloughed and a claim made under the Scheme.
The guidance confirms that HMRC will check claims and that payment will be withheld or reclaimed if dishonest or inaccurate information is provided or a claim is fraudulent. Employees and the public will be able to report suspected fraud through an online portal.