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Part-time work and furlough: What happens to your holiday and pension?

Paloma Kubiak
Written By:
Paloma Kubiak

Flexible furlough will come into effect on 1 July enabling employees to come back to work part-time.
What does this mean for your holiday accrual and pension contributions?

From 1 July, furloughed employees can be brought back to work part-time for any amount of time and any shift pattern while they can be furloughed for the remaining period.

While this flexibility to the scheme is likely to benefit both businesses and employees with the ultimate goal of reducing redundancies amid the coronavirus pandemic, what does this mean in terms of your holiday entitlement going forward and for your pension contributions?

Holiday entitlement

Kate Palmer, associate director of advisory at Peninsula, said the statutory minimum entitlement to annual leave continues to accrue during all types of furlough.

“It will not be affected by the transfer of the employee onto flexible furlough; it will still accrue at the same rate as if the employee were at work for the whole period. Employees will still be able to request annual leave whether during the working portion of the part-time arrangement, or the furlough portion.

“Similarly, employers will be able to require employees to take leave during flexible furlough subject to the consideration of whether the leave will fulfil its function of providing time away from work which the employee can enjoy,” she said.

Palmer added that employers may agree with employees that accrual of annual leave entitlement above the statutory minimum is adjusted during furlough, whether full or flexible.

However, she said the current guidance doesn’t cover the issue of when annual leave must be used, and this is generally down to an employer to dictate.

“The recent amendment to the law on carry over of leave will still apply. Where it was not reasonably practicable to take leave in this leave year because of coronavirus, four weeks of leave can be carried over to the next two leave years. This is in addition to the ability to carry over 1.6 weeks of statutory minimum to the next leave year, where this is set out in writing,” she said.

Pension contributions

The Coronavirus Job Retention Scheme (CJRS) will see a number of changes from July, with an increasing portion of wages being covered by employers rather than the government. Currently, 80% of wages (maximum £2,500 per month) are covered under the scheme.

Kate Smith, head of public affairs at Aegon, explained that employer pension contributions will be based on the salary actually paid to the employee, with some employers of furloughed workers continuing to pay full salary.

Smith said: “From August employers will have to pay the auto-enrolment minimum contributions (3% of qualifying earnings) based on the actual salary being paid (not claimed).

“So, for furloughed workers this is at least 80% of regular salary (but based on qualifying earnings) capped at £2,500 per month. In July employers will be able to claim the employer auto-enrolment pension contributions – but only on the furloughed amount. If they pay higher pension contributions than this, they can’t claim it under the CJRS.

“Some employers and employees will pay higher contributions – these should be based on the actual salary being paid (not claimed).”

Smith added that if salaries are lower, pension contributions will be lower, if they’re based on a percentage of earnings.

She explained that if the 80% of earnings brings a worker’s salary below the £10,000 a year (£833 per month) threshold and the employer uses the auto-enrolment definition, both the employer and employee contribution will stop and the pension is ‘paid up’.

Smith said: “We expect there will be an increase in the number of paid up pension pots (many of which will be small), not only because earnings for furloughed staff will have fallen, but also due to the increase in the numbers of employees losing their jobs.”

Further, some employers will be looking to reduce their pension contributions down to the auto-enrolment minimum. “They can’t reduce them below this”, she said.

“Normally they have to consult with employees on any reduction in employer contributions for at least 60 days. This requirement has been waived by the Pension Regulator for furloughed workers only – provided certain criteria are met,” Smith added.

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