Furlough and annual leave: more questions on the Job Retention Scheme

Coodes Solicitors employment specialist, Philip Sayers, shares new information on the Coronavirus Job Retention Scheme but says he still has questions, particularly on the impact of furlough on annual leave.

Following my recent blog on the Coronavirus Job Retention Scheme, further information is now available. However, a number of areas still remain unclear, particularly in relation to furlough and annual leave.

This recent information came in the form of an ACAS guidance note on holidays and new guidance from HMRC. The Chancellor made a Treasury Directive on 15 April which, frustratingly, differs from HMRC’s guidance in some respects.

More clarity on which employees can be furloughed

The updates provide clarity on three categories of workers, whose position was previously unclear.

1. Employees who joined the payroll in March

The Government previously advised that furloughed employees had to have been on the payroll (and notified to HMRC) on or before 28 February. An update has now stated that they had to have been on the payroll (and notified to HMRC) on or before 19 March 2020.

On the face of it that is a significant expansion to the scope of the scheme but we suspect the effect may be fairly limited. That is because most employees are paid at the end of a month and it is usually a payment that triggers an HMRC notification. Therefore, if an employee started work between 1 and 19 March, the HMRC notification would likely not take place until the end of March, rendering them ineligible for furlough.

2. Employees who are inherited via a TUPE transfer

The new guidance confirms that employees who joined a company through a TUPE transfer, following a change in business ownership, can be placed on furloughed leave. This includes those employees who arrived after the usual cut-off date of 19 March.

3.Employees with more than one job

Furloughed employees with more than one job can usually be furloughed from one while continuing to work for another employer. However, this does not apply to linked or associated employers. That means that employers with a group structure cannot manipulate the Job Retention Scheme so that a furloughed employee continues working for another company within the group.

The guidance has also confirmed that HMRC’s portal should be working by 20 April so that employers can notify them of which staff have been furloughed. However, payments will not be made until the end of April.

Questions that remain unanswered

Employers are still seeking clarity on some key points, including:

1. Does furlough have to be agreed in writing?

There is a potentially important difference between the new guidance and the Treasury directive.

It has been clear from previous HMRC guidance that an employer needs to place an employee on furlough in writing and that they need to keep the record of doing so for five years. However, the Treasury Directive seems to go beyond that and states that the employer and employee must agree to furlough in writing (including via email).

We are unsure whether this discrepancy is intentional but until there is some clarification of this point we suggest employers require that employees respond to the furlough notification with express agreement.

2. Can furloughed employees take annual leave?

HMRC’s guidance and the Treasury Directive say nothing about the interplay between furlough and annual leave – it remains frustratingly unclear. ACAS (an authoritative but not decisive source on employment law) has, however, published its own guidance note, suggesting that employees can be simultaneously on furloughed leave and on annual leave. If correct that would mean that an employer needs to pay 100% of wages for holiday days but is able to reclaim 80% of that from the government.

3. Can furloughed employees take annual leave?

The ACAS guidance also states that furloughed employees can request holiday and employers can notify employees to be on holiday on particular days. Unless the contract specifies otherwise, both need to give twice as much notice as the number of days to be taken. This is in line with the usual employment law position.

It is unlikely to be controversial for furloughed employees to request holiday, as they would otherwise be entitled to take that holiday at a later date. However, we suggest some caution with regards the suggestion that an employer can compel a furloughed employee to be on holiday during the Coronavirus crisis. That is because Employment Tribunals have consistently held that the purpose of holiday is relaxation.

We can envisage employees arguing, potentially successfully, that they have been unable to relax while confined to their homes. It is worth remembering that an employee who falls sick while on annual leave is entitled to convert their annual leave into sick leave and take annual leave at a later date.

While things are becoming clearer, we understand that many of our business clients still have unanswered questions about the Job Retention Scheme. We will continue to update employers as the situation develops.

For more information or advice, please contact the Employment team at Coodes Solicitors: cde@coodes.co.uk