Annual leave has quickly become a prevalent topic for UK employers. It is an area of employment law that can be complex even in less challenging circumstances, particularly for overseas employers with a small number of UK employees.

In these times of social distancing and global travel restrictions, it is currently less likely that employees will have a desire to take a holiday, particularly where they are furloughed and not working anyway.

This poses a potential long-term issue for UK employers around accrued but untaken leave. It also raises questions on holiday carry-over, the effect of taking a holiday while on furlough leave, whether employers still have the right to specify dates on which employees may, or may not, take a holiday, and more.

The legal position

Under the Working Time Regulations 1998, UK employees have a statutory right to a minimum of 5.6 weeks' paid annual leave. Employers and employees can agree on an enhanced entitlement if they wish – but cannot agree below the 5.6 week minimum.

The Employment Rights Act 1996 provides that an employee's holiday entitlement should be set out in their initial statement of employment particulars, which is usually their employment contract.

Holiday carry-over and accrual

UK employees must take a minimum of 4 weeks' annual leave within their employer's holiday year unless they are prevented from doing so. For example, in a case of long-term sickness, in which case they may be able to carry over some or all of this entitlement to the next holiday year.

On the other hand, some or all of an employee's additional 1.6 week entitlement can be carried over into the following holiday year even where it was possible for the employee to take this in the current year, provided this is agreed with the employer.

In March 2020, the Working Time (Coronavirus) (Amendment) Regulations 2020 (the "WT 2020 Regulations") were introduced, which, in some cases, extend an employee's right to carry over the untaken holiday. Employees may now carry over potentially all of their untaken holidays into the next two holiday years where, as a result of the current pandemic, it has not been 'reasonably practicable' for them to take this.

To answer the question of reasonable practicability, employers will need to consider a range of factors, including the following:

  • The Worker. For example, employers should consider an individual's health, whether they are furloughed, the length of time remaining in the holiday year and whether it is practicable for an employee to take their remaining holiday in this period.
  • The Employer. Employers should consider the extent to which their business is affected by Coronavirus, for example, any increases in demand, or any disruption which required an employee to provide temporary cover for another worker.
  • The Wider Economy or Society. The extent to which the worker is taking leave would impact on the wider society's response to, and recovery from, the current situation, for example if they are a 'key worker'.

If, as a result of the WT 2020 Regulations, holiday carry-over is permitted, employers should encourage employees to take this leave as soon as is practicable. We strongly recommend that employers obtain legal advice before responding to an employee's carry-over request, particularly where they are seeking to refuse this.

Furlough leave and annual leave

The question of whether an employee can take annual leave while on furlough leave was finally answered in an update of the government's employee guidance, which provides that annual leave can be taken while an employee is furloughed. This policy remains under review by Her Majesty's Revenue and Customs (HMRC).

However, whereas furloughed employees will typically be paid at 80% of their original wage for the period they are furloughed, employers will usually need to make sure that any period of annual leave is paid at 100%.

Employers should be particularly careful with bank holidays occurring during furlough leave as, depending on the wording of the employment contract, these may be automatically incorporated as a holiday. If bank holidays are typically taken as leave, an employer will either need to pay full holiday pay or provide a day off in lieu.

Employers remain able to specify dates during furlough leave on which employees must take annual leave. Moreover, it is unlikely that it would not have been 'reasonably practicable' for a furloughed employee to use their holiday entitlement in the current situation, given that they are not working.

However, employers should always seek advice in specific circumstances.

Employer rights and obligations

A common misconception among employers is that employees now have the automatic right to accrue significant amounts of a holiday, to take this all at once, and, as a result, to put a strain on business operations. This is not the case.

Employers retain the right to specify when an employee must take annual leave, provided that (a) they give notice in advance specifying the days to be taken; and (b) this notice is at least twice the length of the proposed period of leave. Employees, too, must follow the same notice provisions when requesting holiday.

However, a change to UK legislation has been implemented with regards to the circumstances in which an employer may or may not refuse a holiday request. This relates specifically to 'carried-over leave' (i.e. leave that it was not practicable for an employee to take due to Coronavirus, and which accordingly has been carried over under the WT 2020 Regulations).

'Carried-over leave' is subject to additional protections whereby employers will need to have a "good reason" to refuse an employee's request. It is not yet clear what would constitute a "good reason", and the term is notably subjective. It will likely need to be a legitimate business consideration at the very least.

Employers are entitled to request that employees use up their 'carried-over leave' first, and only then take their usual annual leave entitlement. For this latter entitlement, the usual notice provisions for refusing an annual leave request (i.e. requisite notice in advance which is at least the length of the proposed period of leave) still apply.

Most employers will wish to exercise this right, provided they can ensure employees can take their usual holiday entitlement in that holiday year as well. From a practical perspective, employers will wish to consider keeping a separate record of an employee's 'carried-over leave' to their usual annual entitlement, to ensure full visibility as to what is outstanding.

In instances where an employer is seeking to refuse an employee's request to take 'carried-over leave', we strongly recommend that you take appropriate legal advice and document decision-making processes.

As a final point, employers must also bear in mind that if they terminate an employee's employment while that employee has outstanding 'carried over leave', they must pay the employee for that accrued but untaken leave as usual and following the WTR 1998.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.