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COVID-19: How to Deal With Annual Leave and Holiday Pay

Fiona Sinclair, Darwin Gray
May 12, 2020

The COVID-19 pandemic has forced the majority of workplaces to close with employees either working remotely from home or placed on furlough leave.

This has had a big impact on workplace policies and procedures, and in particular there is uncertainty for employers on how to deal with employee annual leave and holiday pay during the lockdown.

HR Consultant, Fiona Sinclair shares tips for dealing with annual leave and holiday pay, including the importance of a consistent approach to your annual leave policy during the lockdown and making decisions based on what is best for your business:

Carrying forward annual leave

Your employees may want to carry forward annual leave to the next holiday year if they were prevented from taking it due to the pandemic. For example, an employee could be in self-isolation, too sick to take holiday before the end of their leave year, or you may need them to continue working during the lockdown. The government has passed emergency legislation relaxing the carry over rules, allowing up to four weeks of carry over leave to be taken in the next two holiday years if employees have been prevented from taking annual leave due to the COVID-19 crisis.

Rejecting and cancelling annual leave requests

You are entitled to reject an employee’s annual leave request if you need them to work on certain dates. You can also cancel an employee’s pre-approved annual leave if you have a good reason to do so; for example, your employee is a key worker providing essential services during the pandemic. However, if you do not have a good reason for cancelling pre-approved annual leave, you risk damaging employee relations and potentially a constructive unfair dismissal claim for breaching the terms of their employment contract.  

Requesting annual leave be taken

You may be concerned that your employees will return to work with substantial amounts of holiday to take in a short period of time, leading to an absent workforce (with a likely knock-on effect on productivity) who are entitled to take that paid time off. In order to avoid this situation, you can ask your employees to take some or all of their statutory annual leave entitlement during the lockdown, provided that you give them the required period of notice – at least twice the length of the period of leave you are requiring them to take. For example, if you require them to take 2 days’ annual leave, you will need to give them at least 4 days’ notice of that requirement.

In relation to furloughed employees:  

  • HMRC has confirmed that employees will continue to accrue annual leave whilst they are on furlough leave and will be entitled to their usual pay during such periods of annual leave. This suggests that if you are paying an employee 80% of their salary during their furlough leave, you will need to make this up to 100% of their normal pre-furlough salary for any period of annual leave taken during furlough leave.
  • If you ask your furloughed employees not to take any annual leave because you are not able to top up their furlough pay, then they will probably be entitled to carry over up to four weeks of annual leave to the next two holiday years. Consider whether it is more cost effective to top up furlough pay now in order to avoid such a scenario, particularly if you anticipate needing your employees in work regularly following the lockdown.
  • In relation to bank holidays which fall during an employee’s furlough leave, you can treat these days as part of their statutory annual leave entitlement – but you will be required to top up their furlough pay if they are receiving a reduced salary during furlough leave. If you do not want to top up in this way during the employee’s furlough leave, you can potentially cancel the day of leave on the bank holiday (with the required notice) and allow the employee to take a day off in lieu, paid at full pay,  once the employee has returned to work.

Should you require further information regarding annual leave either during or post-lockdown, including assistance to review or to draft a suitable annual leave policy for your business, please get in touch:


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