Recruitment industry asks for definitive guidance on holiday pay

Definitive guidance on the government’s Coronavirus Job Retention Scheme (CJRS) promised by the government cannot come soon enough for the UK’s temporary worker sector.

Recruiters and umbrella firms that payroll temporary workers have told Recruiter that the existing guidance on holiday pay leaves them confused, with many torn between paying their temporary workers themselves, and the risk that by doing so this could put the future of their company in jeopardy. 

The promise of updated guidance came from HMRC in a statement sent to Recruiter on Friday afternoon [24 April], which said: “BEIS [Department for Business Energy & Industrial Strategy] will be issuing more guidance on this soon.” Recruiter has contacted BEIS again for that further guidance.

Meanwhile, umbrellas firms and recruiters say they have received conflicting legal advice on the guidance, with some being advised that holiday pay should not be included in the 80% of regular salary they can claim from the government’s scheme, and that they must bear the cost – 12.07% of payroll – themselves. Some say they cannot afford this, leaving their out-of-work temporary workers without any income.

Other recruiters and umbrellas say they have been advised to include holiday pay in the 80% figure and that they will get this back from HMRC.

Graham Fisher, group managing director at umbrella firm Orange Genie, told Recruiter that the company was torn between doing the right thing and the financial risk to the company of doing so: “We want to pay our contractors as much as we can get from the government’s furloughing scheme, but we have to ensure we can survive as an organisation going forward.”

Fisher said that the cost to the company of paying holiday money to its furloughed contractors could be as high as £500k a month. “And this at a time of crisis when we are not earning any money, so there is no money coming in, but the [furloughed] contractors have been specifically excluded from working for us.

“We are still trying to resolve the issue,” he added.

Kieran Smith, CEO of Driver Require, said that having taken the decision to include holiday pay in his firm's application for a CJRS grant, subsequent legal advice he had received had confirmed his stance. 

Julia Kermode, CEO at the Freelancer & Contractor Services Association (FCSA), told Recruiter that different legal advisers had given the organisation differing views on the guidance. However, Kermode said if it was her, she would be cautious. “If I was an agency or an umbrella, I would take it to mean that it is an additional cost on top of the regular 80%,” she said.

Louise Rayner, CEO at umbrella firm NumberMill, said that despite warnings from lawyers that not paying the holiday could lead to contractors coming after her company at a later date for unpaid holiday pay, she had decided not to include it in the company’s furlough payments. “I am paying out based on average earnings, and hope that no one comes after me for holiday pay. Can I pay the holiday pay allowance? No, because how could I afford it?”

Rayner said that she had changed the company’s furlough agreement with its contractors so that they had waived their right to holiday pay. “Legal or not, we believe that this is the right thing to do and that it is what the government means [in its guidance].”

Although the guidance does allow an employer and employee to vary holiday entitlement as part of their furlough agreement, Kermode urged caution. “Anything is possible with varying contract terms, but the future concern is what happens if an individual takes up a case and a court decides that it was only agreed under duress, and that it was an unfair change.”

In a statement, Neil Carberry, CEO at the Recruitment & Employment Confederation, told Recruiter: “We have been working with government to make the rules on their current approach clear, and we hope new guidance will confirm what we have said all along – that agency workers on a contract for services, who aren’t workers when not on assignment, don’t accrue holiday pay. 

“The accrual of holiday pay makes it difficult for recruitment agencies to use the furlough scheme for temporary workers, as a direct cost of almost 13% of wages for each worker is unaffordable when there is no money coming in. Where temps are employed, and so are likely to accrue under the current approach, firms must have a route to reclaiming 80% of the holiday pay from CJRS, as all other employers do.

“We would like the government to apply the ECJ’s [European Court of Justice] Heimann judgement to say that holiday doesn’t accrue [during a furlough period], but so far they have chosen a different route. It is vital that government helps agencies to protect as many workers as possible – but there is also a role for clients in managing this.”

In statement sent to Recruiter on Friday, HMRC stated: “Furloughed employees continue to accrue leave as per their employment contract. The employer and employee can agree to vary holiday entitlement as part of the furlough agreement, however almost all workers are entitled to 5.6 weeks of statutory paid annual leave each year, which they cannot go below. BEIS will be issuing more guidance on this soon.” 

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