Kate Martin: Managing an employee’s holiday allowance while on furlough

With so many holidays booked and cancelled during lockdown, and there being a number of bank holidays that have fallen during this period, it has left employers wondering what is the right way to be managing employees’ holiday allowances while they are on furlough.

The government guidance on taking holiday while furloughed has been the subject of much scrutiny, partly because it was initially left open to interpretation as to how holiday should be paid. It has now been made clear that the statutory holiday allowance of 5.6 weeks (or the pro-rated amount for part-time employees) should be paid at the normal rate of pay, that is if employees are only paid 80% of salary while furloughed, this should be topped up to 100% of salary.

Statutory holiday accrues as normal during any period of furlough, and additional contractual holiday will also accrue as normal, unless it has been formally agreed otherwise with the employee. Employers can require employees to use their holiday allowance during the period of furlough, provided that they give the employee twice the amount of notice as the period of leave they want them to take. Alternatively, employers can also take the decision not to allow any holiday to be taken during furlough, provided that they give the employee notice of the same number of days as the period of holiday that the employee wanted to take.

Those placed on furlough should also be paid for bank holidays, if the bank holiday usually forms part of an employee’s normal holiday entitlement. In this case, employers can still use the furlough scheme to cover 80% or £2,500 gross if lower (until the end of August) of holiday pay, but should then be topping up employees’ holiday pay to 100%, if they are not doing so already. If the bank holiday would normally be a working day for a furloughed employee, then it should be treated as such and they can receive their furlough pay as normal, with no requirement to top up.

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Flexible furlough will be introduced on 1 July, providing employers with the ability to utilise the scheme while also allowing employees to work part-time, depending on the business’s needs. The position remains the same in respect of holiday with flexible furlough, as it does with the current scheme, so employers should still manage the use of holiday and holiday pay in accordance with the above.

Kate Martin is an associate in the employment team at JMW Solicitors.