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Holiday Pay and Furlough Leave

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Over the weekend the Government has published the latest in a series of updated guidance on the Coronavirus Job Retention Scheme.  This answers outstanding queries relating to the interaction between Holiday Pay and Furlough Leave.

In a nutshell: Employees can take holiday during furlough leave; it does not break the 3-week furlough period, but employers will have to top up furlough pay so that the employee receives full pay for their holiday.

In more detail: We know that furloughed employees continue to accrue leave as per their employment contract.  The employer and employee can agree to vary additional contractual holiday entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year which they cannot go below. For example, if an employee’s contract says that they are entitled to 7 weeks’ holiday, the employer and agree can agree to (temporarily) reduce that to 5.6 weeks.

A question which had been troubling us whilst unanswered by the Government was, ‘Can employees take holiday whilst on furlough?’ The guidance now confirms the answer: Yes.

The Working Time Regulations require holiday pay to be paid at the employee’s normal rate of pay or, where the rate of pay varies, calculated on the basis of the average pay received by the employee in the previous 52 working weeks. Therefore, if a furloughed employee takes holiday, the employer should pay their usual holiday pay in accordance with the Working Time Regulations.

Employers will be obliged to pay additional amounts over the grant, though will have the flexibility to restrict when leave can be taken if there is a business need. This applies for both the furlough period and the recovery period.

If an employee usually works bank holidays then the employer can agree that this is included in the grant payment. If the employee usually takes the bank holiday as leave then the employer would either have to top up their usual holiday pay, or give the employee a day of holiday in lieu.

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