Please note: The information given in this article is correct as of 17/04/2020. Due to the ongoing nature of the coronavirus situation, guidance is subject to change and, as such, we would always recommend you speak with a solicitor for specific advice.

Many employers have needed to place some or all of their staff on temporary leave known as furlough leave during the Coronavirus pandemic. There has been some confusion as to whether an employee on furlough leave is able to take annual leave at the same time for part of the furlough leave period as the guidance was silent on this point initially.

On Friday 17 April 2020, HMRC provided some clarity on the issue. At the time of writing, HMRC has updated the Employees’ Guidance but not the Employers’ Guidance to deal with the issue of annual leave.

The Employees’ Guidance makes clear that it is possible for an employee to take holiday whilst on furlough leave. The Working Time Regulations require holiday pay to be paid at the normal rate of pay, or where the rate of pay varies, calculated on the basis of the average pay received in the previous 52 working weeks.

This means that where an employee takes annual leave during the furlough period, they will need to be paid their usually holiday pay. If an employee has agreed to a variation to their contract to include a reduction in their contractual pay whilst on furlough leave to the amount of the grant that can be claimed, an employer will be required to pay the employee their usual holiday pay which will require topping up the difference above the grant received through the Coronavirus Job Retention Scheme.

If an employee works bank holidays, the employer can agree that this is included in the grant payment whilst on furlough leave. If the individual usually takes the bank holiday as annual leave then the employer can either top up the pay to the usual holiday pay, or give holiday in lieu to take at a later date.

Whilst on furlough leave, an employee will accrue annual leave entitlement as usual according to the contract of employment.

HRMC’s guidance is silent on the point of whether an employer can require an employee to take annual leave whilst on furlough leave which would reduce the employee’s entitlement at the Government’s cost. This currently remains unclear.

The Guidance concludes the holiday section by stating “During this unprecedented time, we are keeping the policy on holiday pay during furlough under review.”

It is also important to note that the Working Time Regulations have recently been amended to allow employees to carry over annual leave to the next two holiday years if they are unable to take their leave due to the effects of COVID-19.

If you require advice on furlough leave or any other employment matter, please contact Farleys’ experienced employment law team on 0845 287 0939 or complete our online contact form and a member of the team will get in touch with you.