Guidance issued by the Department of Business, Energy & Industrial Strategy (BEIS) has provided clarity on accrued holiday for agency workers who have been furloughed. https://www.gov.uk/guidance/holiday-entitlement-and-pay-during-coronavirus-covid-19
Some commentators had been concerned that furloughed agency workers would continue to accrue holiday, leaving agencies with a potential holiday pay liability that would not be covered by the furlough scheme.
As explained in our article of 24th April (see here) the legal position is that entitlement to holiday accrual exists if the individual is a worker, but not otherwise. Once an assignment has ended, unless the engagement contract specifies otherwise, the individual is no longer a worker and so has no ongoing entitlement to accrue holiday. This position is mirrored in the new guidance for furloughed agency workers, which explains that agency workers on employment contracts or those that allow for continuing rights in between or after assignments remain entitled, but otherwise:
“Some agency workers on a contract for services may not be entitled to the accrual of holiday or to take holiday under the Working Time Regulations while on furlough because they are not workers or treated as workers under those regulations when between assignments or otherwise not working on assignments.”
Many agency workers are engaged on such contracts for services, but interested agencies should always check their existing contracts to make sure this is the case. Subject to that, it follows that the variation of a contract for services, to extend statutory rights which otherwise would not exist following the end of an assignment, would be highly disadvantageous and costly for the agency. This is because a variation of this kind in particular allows holidays to accrue during the furlough period, which the agency will ultimately have to account for.
It is understood that template variations extending rights in this way have been recommended in various quarters. Those who have followed those recommendations, unless they remain happy to allow holiday to accrue, should consider terminating all furlough agreements, and renew furlough on the correct basis. Termination ideally should be done once the minimum first 3 weeks required to qualify for the government grant has expired. An alternative would be to further vary the furlough agreement, but this is a more dangerous route given that the reason for change would be removal of a legal right, with potential ramifications under the Agency Conduct Regulations and/or the Working Time Regulations. In either case care must be taken over the process to minimise risk of a claim arising from the removal of statutory rights.
Some losses may already have been incurred and so decisions should be made quickly. Whilst change will require more admin and may cause some friction with furloughed workers who have had holiday accrual extended, this may be more attractive than continuing to accrue a holiday pay obligation which will always be calculated at the worker’s normal rate rather than the furloughed rate.
Those who have relied on the incorrect advice around holiday pay and decided not to furlough may feel that they can now safely furlough their agency workers in light of the guidance which affirms the legal position from the outset. It will be important to get the right furlough agreement in place as soon as possible, taking suitable care and attention to detail to ensure both the process and the documentation is correct.
For more information or legal advice on furlough contract arrangements call Lawspeed on 01273 236236 or email email@example.com.