Furloughing and Holiday Pay

Savings available are significant

Take the worker paid £500 per week.  If there are, say, 9 further weeks during which a worker is not required to work but is furloughed, the worker could be given 6 weeks’ notice to take 3 weeks of holiday their annual entitlement.

The cost to the employer of that holiday would normally be £1,500.  However, that can be subsidised by furlough payments which, to keep the sums simple, we will assume to continue at 80%.

That means the employer saves £1,200.  If you add national insurance and pension contributions, it is closer to £1,350 for just one employee.

Let’s say more commonly the holiday to be required is 2 weeks.  At 37.5 hours per week on minimum wage level of £8.70, an annual salary of £16,995, the saving is £572 for each employee.  On salaries of £30,000 or higher, the saving is still about £1,301 per employee.

How far can you go?

From various perspectives, it may be objectionable to insist a worker takes 3 or even 4 weeks holiday all at once.  But where businesses would normally expect a significant portion of annual leave to be taken in the summer months, if that just happens to coincide with the availability of furlough payments why shouldn’t an employer insist on annual leave of, say 2 weeks, being taken as normal?  For any full-time worker, that is still a saving of between £572 and £1,301 and which avoids the later disruption from stored up holidays.

And if an employer could go the whole hog of requiring 4 weeks leave to be taken, the effective saving via furlough is such that the employer could at later stage exercise discretion to allow more leave to be taken, whether paid at full rate, reduced rate (say 80%) or even unpaid.

Taking advantage of furlough

Is taking furlough to pay for holidays proper?  Taken in moderation and not to excess, yes, and many employers would argue they are duty-bound to do so.

If taken too far, objection may be raised on the basis this is not in the spirit of the scheme and repayment could be sought down the line.  On the other hand, where other avenues of financial support are denied and where public sector workers are being sustained on full pay without the financial impact of the lockdown, some may question whether spirit really counts for much and then if only for some.

No reason not to

The furlough scheme is being kept under review in relation to holidays.  Even if the scheme is changed to restrict holidays being paid for by furlough or even seek reclaim those payments, the holiday will still have been taken employer will be no worse off in cash terms than if the holiday were taken at a later date but will have had a cash-flow benefit.

Of greater concern, many workers will want to store up holidays and holiday pay until after furlough, so maintaining goodwill while communicating this requirement is important.

Additionally, there is also the potential for imposition of holidays to give rise to discrimination complaints in some circumstances.

Both of these issues can be addressed easily and effectively as long as individual circumstances are considered and notices are properly drafted and communicated.