A Coronavirus Job Retention Scheme (furlough leave) was announced by the government on 20 March 2020 and will be administered by HMRC.
What does it mean?
All UK employers, regardless of size or sector, can claim a grant from HMRC to cover 80% of the wages costs of employees who are not working but kept on the payroll (“furloughed”).
It will apply in respect of all employees on PAYE, including those on zero-hours contracts. This means that it will cover many workers as well as employees
Employers can claim up to £2,500 a calendar month for each employee.
The scheme will be backdated to 1 March 2020 and last at least three months
Employers can choose to top up the remaining 20% if they wish.
The government hopes that the first grants should be paid within weeks.
Steps for employers to take
- Decide which employees to select as furloughed employees. It is advisable to have some fair and objective selection process in place.
- Notify those employees of the intended change.
- Agree the change with the furloughed employees if possible (not needed where there is a right to lay off). Most employment contracts will not permit an employer to reduce pay without agreement. However, faced with the alternative of redundancy (or lay off/short time working where the contract permits), the majority of affected employees are likely to agree to be placed on furlough leave on 80% pay.
- Consider the need to consult with employee representatives or trade unions. If an employer intends to suspend on 100% pay then it is arguable that they will be entitled to do so without the need to consult. However, if an employer intends to vary the contracts of 20 or more employees to reduce pay to the 80% which can be reclaimed, and it intends to dismiss employees who do not consent to being furloughed, then for the purposes of section 188 of TULRCA, those employees will be classed as dismissed by reason of redundancy (the need should become clear at the ‘agree the change stage’, above). An employer will have a duty to inform and consult appropriate employee representatives where there may be the need for dismissals of more than 20 employees.
- Confirm the employees’ new status in writing. Ideally, the employer should advise how long it expects furlough leave to continue, however, this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period, subject to review.
- Submit information to HMRC about the employees that have been furloughed and their earnings through the new online portal. The ‘COVID-19: support for businesses guidance’ states that HMRC will set out further details on the information required.
- Ensure that the employees do not carry out any further work while they are furloughed.
What does the £2,500 cover?
Employers will be reimbursed “80% of furloughed workers wage costs, up to a cap of £2,500 per month” and allows an “employer to claim a grant of up to 80% of [their] wage for all employment costs, up to a cap of £2,500 per month” (government guidance).
It is unclear at this stage whether the £2,500 reimbursement is intended to cover anything other than the employee’s basic salary. The use of the words “all employment costs” in government guidance suggests that this could include additional costs such as pension contributions.
Not topping up the remaining 20%?
Withholding 20% of an employee’s salary will amount to breach of contract and unlawful deduction of wages unless the employee gives their consent. It is expected that the majority of employees will consent since furlough leave is a better alternative than unpaid leave, lay-off, or redundancy.
Unknowns
- If employers have a reduced need for employees then it may want utilise employees on a part time basis and to furlough them for part of their working week. It is unlikely that this will be an option.
- Can an employee return to work from furloughed status, then be furloughed again (can the tap be turned on and off)?
- How does the scheme work when employers have employees with irregular earnings/zero hour contracts? Will there be some form of averaging earnings calculation?
- Who pays what and when. The initial guidance is that employers will have to make the payment initially, and are then reimbursed by the CJRS. There is no guidance as yet on whether it will be possible to delay payment of wages.
- If employers have dismissed are they permitted to reinstate employees onto furlough leave?
- Will the amounts paid under the CJRS be liable to PAYE and national insurance?
- What penalties will apply for an abuse of the scheme? For example, continuing to utilise employees who have been given furlough status, impromptu temporary pay increases or taking onto the books of family members.
