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COVID-19: Updates to holiday and sick pay

Navin Sharma, Employment Tax Executive and Nick Irvin, Employment Tax Assistant Manager
19/04/2020
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The government has announced a number of key measures in order to help employers and employees adjust to the disruption caused by the COVID-19 crisis. We have outlined the adjustments that have been made to Statutory Sick Pay and holiday allowances below.

Statutory Sick Pay (SSP)

Inevitably, COVID-19 has led to, and will continue to lead to, employees being off work due to sickness. In addition, individuals who display symptoms of the virus are required to self-isolate for seven days, or if they are in the same household as someone who displays symptoms they are required to self-isolate for 14 days. Employers may be wondering what this means for the employees who are off sick or self-isolating, particularly if those in self-isolation cannot work from home.

There are two parts to the government support of SSP as a result of COVID-19:

  • removing the criteria that SSP is only paid from the fourth day of absence onwards
  • refunding SSP to employers with fewer than 250 employees.

The first of these measures means that SSP can be paid from day one, rather than day four, of an employee’s absence from work due to sickness or need to self-isolate. This will apply retrospectively from 13 March. For example, if an employee was off of work for five working days due to self-isolation, they would be paid SSP for five days, rather than just for the fourth and fifth days.

The second measure means that small or medium-sized employers (those with fewer than 250 employees as at 28 February 2020) will be able to reclaim the cost of paying two weeks’ SSP per eligible employee if the absence relates to COVID-19. The scheme will be backdated to 13 March 2020. The repayment mechanism is not yet set up, but this will be live in due course.

Statutory Sick Pay Rebate Scheme

On 19 May 2020, HMRC released an update on the coronavirus Statutory Sick Pay Rebate Scheme.

The scheme will launch online on 26 May and will enable employers with fewer than 250 employees to claim back the costs of coronavirus-related Statutory Sick Pay (SSP). Tax agents will be able to make claims on behalf of employers.

Employers are eligible to use the scheme if:

  • they’re claiming for an employee who’s eligible for sick pay due to coronavirus
  • they had a PAYE payroll scheme in operation before 28 February 2020
  • they had fewer than 250 employees across all PAYE schemes on 28 February 2020
  • they’re eligible to receive State Aid under the EU Commission Temporary Framework.

The repayment will cover up to two weeks of the applicable rate of SSP, and is payable if a current or former employee was unable to work on or after 13 March 2020 and entitled to SSP, because they either:

  • have coronavirus
  • are self-isolating and unable to work from home
  • are shielding because they’ve been advised that they’re at high risk of severe illness from coronavirus.

To prepare to make a claim, employers should keep records of all the SSP payments they wish to claim for.

Carrying forward Annual Leave

The government have announced that staff who haven’t taken all of their statutory annual leave entitlement due to COVID-19 will now be able to carry it over into the next two leave years. Rules will be relaxed to allow up to four weeks of unused holiday to be carried into the next two leave years.

The idea will help key industries remain well-staffed as the UK battles the COVID-19 outbreak without losing their holiday entitlement.

Most full-time workers on fixed hours are entitled to 28 days of leave a year, including bank holidays, but most of this entitlement can’t be carried forward between leave years, meaning that workers lose their holiday if they don’t take it.

Remember that employers can face financial penalties if they don’t ensure that their staff take their statutory entitlement in any one-year period.

The new measures will help employers become more flexible and apply to almost all workers, including agency workers, those who work irregular hours, and workers on zero-hours contracts.

Employers should be checking the holiday entitlement left for each employee towards the end of their annual leave cycle.

Holiday reference period change for variable hour workers 

From 6 April 2020, the reference period for calculating holiday pay for variable hours workers increased from 12 to 52 weeks.

The change impacts workers who have seasonal roles, zero-hours contracts and those who regularly carry out additional hours of overtime.

Previously, an employer would look at the workers previous 12 paid weeks to calculate what that workers should be paid for a week’s leave based on the average income over the period.

Under the new rules, the pay reference is 52 weeks and for those that have been working for less than that, the total number of weeks they have worked.

The reference period excludes any weeks where they were not paid. This may mean that the actual reference period takes into account pay data from further back than 12 months from the date of their leave (capped at 24 months).

Employers should begin payroll preparations now and review the reference period used to calculate holidays. Clocking in systems may be useful to track the exact hours worked by each worker.

If you are unsure on any of the adjustments for holiday or sick pay, or have any other employment tax queries, our Employers Advisory Group would be happy to help.

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Caroline Harwood
Caroline Harwood
Partner, Head of Share Plans and Employment Tax
London