Next comes the knotty question of whether the holiday pay is based on 80% or 100% of salary. Are payments based on ‘salary’ under the CJRS — which excludes bonuses, commissions, and so on — or is it ‘normal remuneration’ under EU caselaw, which includes these additional payments?
An employee is entitled to be paid ‘normal remuneration’ when on their first (EU) four weeks of annual leave. That’s because the law should not allow employees to be disincentivised from taking annual leave by paying them less on holiday than they would be when at work.
In contrast, the CJRS specifically excludes commission, fees, and bonuses from the amount HMRC will reimburse:
- So, what does an employer need to pay?
- Can they agree with the employee only to pay 80% of base salary? Or do they need to pay the full amount, certainly for the first four EU weeks?
The argument against that is two-fold:
- First, an employee can’t contract out of being paid ‘normal remuneration’ — although that does beg the question whether ‘normal’ is the full financial package or the 80% when someone is on furlough.
- Second, flowing from that, is that ‘normal remuneration’ must be looked at over a longer reference period and not just based on a temporary dip in income triggered by furlough. So if someone is earning commission and bonuses, they are likely to be on irregular earnings and the method of calculating their annual leave payments will be — from 6 April 2020 — by averaging out remuneration over 52 weeks.
The second viewpoint means remuneration paid by the employer to an employee taking annual leave while on furlough must be their normal pay which includes bonuses, commission, and allowances.
However, there is no reason to think that the employer cannot recover 80% of the normal salary — excluding bonuses, commission, and so on — from HMRC under the CJRS.
This is a tricky point and expert advice should be sought to ensure that the correct procedures are being followed. If you need advice or help email us on email@example.com or call 07375 097443.