SHORTER READ

Employment & HR

Coronavirus: An update on ‘Furlough’ Leave

On 26 March, the Government released its much anticipated clarification of the Job Retention Scheme. Whilst helpful for all employers, this will be particularly welcome news to businesses who are already taking steps to place staff on ‘furlough leave’.

SHARE

Authors

On 26 March, the Government released its much anticipated clarification of the Job Retention Scheme. Whilst helpful for all employers, this will be particularly welcome news to businesses who are already taking steps to place staff on ‘furlough leave’.

The scheme is designed to support employers who have been ‘severely affected’ by the COVID-19 pandemic. It enables employers to make an application to HMRC for a grant to reimburse them for 80% of “furloughed employees” usual monthly wage costs, up to a cap of £2,500. It is up to an employer to choose whether to top up an employee’s salary above the 80% (or £2,500). Employees’ pay whilst on furlough will be subject to the standard deductions for income tax and national insurance.

The updated guidance confirms that:

  1. The scheme is open to all UK employers that had created and started a PAYE payroll scheme by 28 February 2020.
  2. When making an application, employers can only include employees who had joined their payroll by 28 February 2020. Anyone whose employment commenced after this date is not eligible.
  3. Individuals who were on the payroll on 28 February 2020, but who have since been made redundant can be re-hired and then furloughed.
  4. Employees on unpaid leave cannot be furloughed unless they were placed on that leave after 28 February 2020.
  5. Employees on sick leave or those who are self-isolating should receive SSP (or, if applicable, company sick pay), but can subsequently be furloughed. Employees who are ‘shielding’ (that is, those who the Government has identified as being extremely vulnerable) can be furloughed.
  6. To calculate the 80%:
    • for full-time and part-time employees, employers will need to use the employee’s gross salary as at 28 February;
    • for employees whose salary varies:
      • if the employer has been employed for at least a year before the claim is made, employers can use the higher of the same month’s earnings from the previous year, or average monthly earnings from the 2019-2020 tax year to calculate the 80%;
      • if however the employee has been employed for less than a year, employers can use an average of the employee’s monthly earnings since they started work.

      Fees, commission and bonuses should not be included.

      • In addition to the claim for 80% of wage costs (up to the cap of £2,500 per month), employers can also claim the cost of employee NICs and the minimum auto-enrolment pension contributions on that wage. Further guidance will be released on this.
      • It remains the position that employees who have been furloughed must not carry out any work for their employer. They can however undertake training or volunteer work provided that no revenue is generated for the employer. Employees who are working reduced hours and/or on reduced pay are not eligible for the scheme.
      • Employees are only entitled to be paid at least the National Living Wage (NLW) or National Minimum Wage (NMW) for the hours they are working. As furloughed workers are not working, they can be paid the lower of 80% of their salary, or £2,500, even if this would be below NLW or NMW (based on their usual salary). If however employees carry out training whilst furloughed, they must be paid at least the NLW or NMW for the time spent training, even if this is more than the 80% of their wage that will be subsidised.
      • Employers can only submit one claim every 3 weeks. Where applicable, claims can be backdated to 1 March 2020. In order to make a claim, employers need to confirm: the number of employees being furloughed (minimum period is 3 weeks), the start and end date of the period of furlough leave, and the actual amount they are claiming.

      Practical points for businesses to consider:

      • Government guidance states that it ‘expects’ that the scheme will not be up and running until the end of April. Once the scheme is open, claims must be submitted by employers and processed by HMRC before any reimbursement is received. Businesses must therefore consider any cash flow issues this may cause.
      • Employers need to decide which employees will be furloughed, being mindful of their obligations under equality legislation. If an employer only needs a limited number of staff to be furloughed, it should consider a fair process for selection of those individuals.
      • Employers will need to agree with employees any necessary changes to their contracts of employment. The guidance confirms that employers must provide employees with written confirmation that they have been furloughed, and employers must keep a record of this communication.
      • Depending on the numbers of staff involved, it may be necessary to commence a collective consultation process.
      • Currently the Government scheme is only open for 3 months (from 1 March 2020); however, it may well be extended. Once the Government scheme ends, employers will need to consider whether employees can return to their previous duties. If not, it may be necessary to seek agreement to further variations of an employee’s contractual terms, or, in some cases, it may be necessary to consider redundancies. Employers should keep this in mind and closely monitor their business needs as the situation develops.
      • If employers are considering rotating staff on furlough leave, they need to think about the logistics of having sufficient cover in the event that an employee becomes ill or needs to self-isolate, bearing in mind that claims can only be made every 3 weeks.

      If you have any questions on this topic or any other, please contact our Coronavirus Employment Advice Helpline and we can help you to consider the options available to you and your business.

Authors

MoreofSinead'sInsights

You are contacting

Sinead Kelly

Associate

sinead.kelly@collyerbristow.com