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View our latest update, as at 15 May, "Coronavirus: Holiday entitlement and pay during the COVID-19 pandemic and the impact of this on the furlough scheme" here.

It won’t have escaped your notice that Coronavirus has had an enormous impact on all aspects of life. One of these is the effect that travel restrictions have had on holiday plans. Naturally, if we are not allowed to go anywhere, plans to travel abroad or even go away in the UK have been cancelled or at best postponed. 

While this is clearly sad news for the individuals whose plans have had to change (me included!), it also has implications for their employers. In particular, what does this mean for the management of holiday entitlement? Affected employees may seek to cancel annual leave booked for such holidays and use it at a later stage once restrictions have been lifted. However, since there is no telling when the ability to travel will go back to normal, there is a risk that this means a lot of employees will end up with a lot of accrued holiday. This is likely to create operational issues for employers if everyone asks to take holiday at the same time just when life is getting back to “normal”. Practically employers may prefer employees to take holiday during this potentially quieter time during the crisis. There is also a wider employee wellbeing issue that staff should be encouraged to take regular breaks from their work, including by taking annual leave.

To assist with a potential large build-up of holiday entitlement the government has stepped in and introduced new rules to relax the carrying over of holiday entitlement into the next two holiday years. This blog explores what this means for employers.

The current position

  • Holiday entitlement in England and Wales is governed by the Working Time Regulations 1998 (WTR).

  • Under the WTR, workers are entitled to 5.6 weeks’ paid annual leave per year (pro-rated for part time employees). This is made up of 4 weeks required under European law (Basic Leave), and an additional 1.6 weeks permitted under domestic legislation (Additional Leave). Some employees are entitled to more holiday under their contracts of employment.

  • The WTR provides that workers must use their 4 weeks’ Basic Leave entitlement in the leave year in which it is due, otherwise the entitlement will be lost. The 1.6 weeks’ Additional Leave can be carried forward into the next leave year if there is a “relevant agreement” (for example, it is provided for in an employment contract) or with an employer’s agreement. This is subject to exceptions in relation to maternity and sickness cases.

  • Employers are also under an obligation to give workers an effective opportunity to take holiday in the leave year in which it accrues.

  • Under the WTR, it is not possible to make a payment in lieu of accrued statutory holiday entitlement except on termination.

What has changed?

The government’s latest announcement applies to the 4 weeks’ Basic Leave. The government will amend the WTR so as to allow workers to carry-over up to 4 weeks’ holiday into the next two holiday years. This provision will apply where at the end of the year it has not been “reasonably practicable” for a worker to take some or all of this leave “as a result of the effects of Coronavirus (including on the worker, the employer or the wider economy or society)”. Although we do not have detail on how to determine when Coronavirus means it is not practicable to take holiday, it is likely to be a low hurdle to clear. However, it is worth bearing in mind that “holiday” in this case means taking a break from work and not the ability for employees to use that time in any particular way (ie on a beach rather than their livings rooms).

Although the announcement suggests this change is aimed at helping “key industries” – such as NHS staff who have had annual leave cancelled in order to focus on caring for those ill with Coronavirus – in fact the draft legislation makes it clear this is a wholesale change to the WTR (albeit a temporary one) and so will apply to all organisations and all workers.

As well as extending the carry-over period, the change also means that:

  • If a worker’s employment or engagement is terminated during the two-year period, any payment in lieu of holiday must include a payment in lieu of holiday carried over under these provisions.

  • Employers continue to have the right to refuse permission for a worker to take leave on particular days (provided they give notice which is at least as long as the holiday requested). However, under the new regulations, they can only exercise this right where there is “good reason to do so”.

What does this mean for employers?

The intention behind this change is a laudable one. It seeks to protect the rights of workers to take annual leave, while trying to prevent a situation where employers are left with a potentially large number of employees all trying to take annual leave in a short space of time (assuming there are a few months of the year when our movements are not restricted by Coronavirus!).

However, there are still issues which employers will need to consider:

1. If you are in a business which is currently providing an essential service, you may want to prevent workers from taking holiday at this critical time. As a result of these changes, you are able to refuse holiday requests if you have “a good reason to do so” (and providing a key service is likely to count as a good reason), and will no longer need to ensure that your workers are given an opportunity take their full holiday entitlement in this current holiday year.

2. Looking to the future, will you have enough capacity in your workforce to accommodate employees potentially having up to an extra four weeks’ annual leave to take over the next two years? Or is there a risk you could be storing up problems in the long run by permitting such a high level of carry-over? If the latter, you may want to consider ways in which to manage when employees will be able to use their holiday entitlement (be it in this holiday year or in the next two if carried over). For example:

 a. Under the WTR, employers are able to give workers notice ordering them to take their statutory holiday on specified dates, provided such notice is twice the length of the period of leave the worker is being ordered to take (though this can be varied via a worker’s contract of employment/engagement). This provision is unchanged by the new regulations.

 b. The changes do not apply to the 1.6 weeks’ Additional Leave entitlement or to any contractual holiday entitlement workers might have, which remain subject to any existing agreements on carry-over. Although there is some debate about the order in which employees take different types of holiday entitlement, you may have more flexibility to prevent employees from carrying-over this type leave.

 c. Although it is not possible to make a payment in lieu of statutory holiday, the same restrictions do not apply to enhanced contractual holiday (above the WTR). In some circumstances, there may be scope for you to seek agreement with employees to try to vary the terms about enhanced holiday on a temporary basis, so that this enhanced entitlement is converted into cash and used, for example, to “top up” wages or paid at the end of a holiday year.

3. Even though the new carry-over provisions mean employers are not under the same obligation to give employees the opportunity to take annual leave in this leave year, it should be remembered that it is good for everyone’s wellbeing to switch off and take a rest from work. This is particularly important when so many of us are working from home, where it is easy for the division between work and home to become blurred. Just because we are unable to “go away” on holiday in the usual fashion does not mean it is not possible still to “take holiday”. You may therefore want to encourage employees to continue to take holiday during this time.

4. Having said that, if you wish to require employees to take holiday during the current period of “lock-down” for welfare, business or operational reasons, we would suggest you give careful consideration to how that is communicated to employees. Although, legally, there is nothing in the WTR that prevents someone from being on holiday at a time when they are not allowed to leave their house, unilaterally forcing employees to use their holiday entitlement in such circumstances (especially now there is greater flexibility to carry-over) may not be a popular move. Where possible, the best approach to this is likely to be to reach agreement where possible. Of course, it is worth bearing in mind that some employees may prefer a period of full paid holiday to a reduced pay furlough period, which bring me to my next point.

Holiday entitlement and furloughed employees

How will holiday entitlement work for people who are “furloughed” under the Coronavirus Job Retention Scheme? The government’s guidance on the scheme is surprisingly silent when it comes to holiday, meaning that unfortunately the position isn’t entirely clear. 

The government’s guidance on the Job Retention Scheme states that “employees that have been furloughed have the same rights as they did previously”. This strongly suggests that workers on furlough will continue to accrue holiday entitlement while they are furloughed. However, the extent to which furloughed workers can be required to take holiday during a period of furlough, or what pay they might be entitled to if they can take holiday, remains unclear. 

Our preliminary view is that, unless and until we have guidance to the contrary, it seems employees can be required to take holiday during furlough and the pay they receive during this time will depend on whether employees are receiving furlough pay or topping up. However, this is unlikely to be popular with employees and so it may only be worth taking this approach if the furlough period is extended significantly beyond May 2020. In the meantime, we would suggest taking advice if you have any questions on this point. It is hoped that further clarity will be provided by the government on this point. 

Holiday entitlement and pay can be a tricky subject to get your head around at the best of times, let alone when last-minute changes like these are introduced. If this is something you would like to discuss, please do not hesitate to contact your usual contact at the Firm.

We appreciate that this is a stressful and worrying time for our readers (and for so many), and we do hope that you find the guidance contained in this blog useful. If you are interested in formally engaging the firm and require further tailored advice in relation to what is covered, please contact Kathleen Heycock, Alice Yandle, or your usual contact at the firm on +44 (0)20 3375 7000.

Please note that our Employment team is currently experiencing a very high volume of queries in light of the COVID-19 outbreak, which unfortunately means that we are unlikely to be able to respond to informal queries of a more general nature, given the need to prioritise urgent queries from existing or new clients. We hope this blog is, however, helpful in addressing some of those more general queries.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2020

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