Coronavirus Job Retention Scheme - Furlough Leave (Update 4th April)
What is furlough leave?
Furlough leave is a government scheme that will allow businesses to continue paying employees’ salary who would have otherwise have been made redundant. The government will reimburse 80% of employees’ employment costs for an initial term of 3 months from 1 March 2020. However, this period may be extended.
"Furloughed" means that an employee has been put on a period of leave during which they are not required to work. The scheme does not directly change the employment relationship between the employer and employee. Rather, it allows the employer to agree with employees that they will be put on temporary leave of absence and then recover a proportion of pay from HMRC in respect of employees on furlough leave.
Which employers qualify for the scheme?
All UK businesses will be eligible. This will include limited companies, limited liability partnerships, sole traders who employ people, partnerships and charities.
What employees are covered under the scheme?
This scheme will apply to all employees and workers on PAYE. This will include those on zero-hours contracts. There is no guidance yet on how a zero hours’ employee’s pay should be calculated.
What do employers need to do?
An employer will need to identify affected employees (those that would otherwise be at risk of redundancy, lay-off or short time-working) as ‘furloughed’ workers and inform their employees of this.
Employers cannot just impose ‘furlough leave’ unless they have a contractual right to do so. Employers should first refer to their contracts of employment. Without a right to remove work within the employment contract, employers need to obtain their employees’ agreement to become furloughed workers. It is best practice to document any correspondence and/or action relating to furlough leave.
Once employees have been identified as furloughed workers, employers need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal. This portal is not yet available and further information has not yet been published.
HMRC will reimburse 80% of furloughed workers’ wage costs up to a cap of £2,500 per month per employee. Some further guidance on this was issued on the 4th April- please see the update below.
How to qualify for the scheme
To qualify for the scheme, employees must not undertake work for their employer whilst on furlough leave. This means that they cannot be called to work during the furlough period or carry out any work from home.
Does the employer have to make up the 20% difference in the employees’ wages?
The government says that an employer is under no obligation to make up the 20% difference in the employee’s normal salary. However, most employment contracts will not permit an employer to reduce their employees’ wages. Without this contractual right, they must obtain their employees’ agreement to reduce pay. It is best practice to document any correspondence and/or action relating to wage reductions in writing and get an employee to sign this. Employers need to be mindful that withholding 20% of an employee’s salary would usually amount to an unlawful deduction of wages unless the employee consents; though these are indeed unusual times.
What does the £2,500 actually cover?
This amount may or may not include employment costs such as pension and national insurance contributions. Some further guidance on this was issued on the 4th April- see below.
Can an employee inform their employer they are taking furlough leave?
An employee cannot declare themselves on furlough leave. It is up to the employer to decide if an employee is to be furloughed. They can however request that their employer put them on furlough leave.
What happens to employee rights during furlough leave?
An employee’s rights will not change during furlough leave. They will remain an employee of the business and will continue to accrue continuity of service and holiday pay.
4 April 2020 update
How do I notify employees that they have been placed on furlough leave?
You must notify employees in writing. It is not adequate to only notify them verbally. You must also keep a record of this written notice, and it must be kept for 5 years.
You also need to have the employee’s agreement to be placed on furlough leave.
Can I claim?
Any employer can claim provided that they:
- Had created and shared a PAYE payroll scheme on or before 28 February 2020;
- Have enrolled for PAYE online; and
- Have a UK bank account.
This includes businesses, charities, recruitment agencies with agency workers paid through PAYE, and public authorities. Individuals who employ people and pay them through payroll can also claim, for example those who employ nannies.
What can I claim for?
You can claim for up to 80% of an employee’s wages, up to a cap of £2,500 per month. Wages includes past overtime and compulsory commission payments (if you are contractually obliged to pay your employees commission). You can also claim for the associated employer’s national insurance contributions and pension contributions. You can also claim ‘fees’, but HMRC have not yet clarified what this could entail.
What can I not claim for?
You cannot claim for discretionary bonuses, discretionary commission payments or benefits in kind (such as health insurance benefits or company cars).
What do I claim for if my employees’ wages vary from month to month?
This will depend on when each employee began working for you.
If an employee has worked for you for 12 months or more you can claim the highest of either:
- The same month’s earnings from the previous year. For example, if you are furloughing an employee for one month from 1 April to the 1 May 2020, you could claim for what that employee earned from 1 April to 1 May 2019; or
- An average of the employee’s monthly earnings for the 2019-2020 tax year.
If an employee has worked for you for less than 12 months you should claim for their average monthly earnings since they started work.
If an employee began working in February 2020, you should work out a pro-rata for their earnings.
For all of the above situations, only 80% of any average or previous earnings can be claimed.
Do I have to pay the National Minimum Wage (NMW)?
You don’t have to pay the NMW whilst the employee is furloughed, but should make sure that the 80 per cent is based on the applicable rate of the NMW, which goes up each year in April.
If an employee undertakes any training whilst they are furloughed, then you should ensure that they are paid the NMW.
It’s our view that the furlough scheme is just a payroll scheme as the guidance for the CJRS makes it clear that the employment relationship is continuing at all times and in every other aspect businesses should do what they would do but for the CJRS and COVID 19. So if you would increase pay pursuant to the NMW Regulations in April 2020, then you should do so, whether your employees are furloughed or not. The CJRS is a red herring because it covers payment of salaries, but it does not change the employment obligations you have you’re your employees under their contract and this is made clear in the guidance. To not pay the applicable NMW is a risk…which could lead to a hefty fine!
Can employees do any work for me whilst on furlough leave?
Whilst on furlough leave an employee must not undertake any work that generates revenue for your business or provides a service to you. However, they can carry out training or do volunteer work, as long as it is in line with Public Health guidelines.
Can my employees work elsewhere when on furlough leave?
Yes. They can still receive furlough pay and go and work for another employer – unless they are contractually prohibited from doing so.
Can directors be put on furlough leave?
Yes, and whilst they will be prohibited from doing any work for your business, they can undertake work necessary to comply with their statutory duties. This may include tasks such as filing annual returns.
Can I furlough employees multiple times?
Yes. Subject to the caveat that each period of furlough must be a minimum of 3 weeks long. This may be helpful if you are struggling to decide who to furlough, as this may be a fairer method for all employees. When considering who to furlough, you should not fall foul of employment law and should avoid any discriminatory grounds for selecting employees.
Can I furlough employees who are on sick leave?
Yes, once an employee is declared fit for work and no longer receiving contractual or statutory sick pay they can be furloughed.
Can I re-employ people who left my employment after 28 February 2020?
If you made employees redundant or their employment terminated for any other reason on or after 28 February 2020, you can re-employ them and put them on furlough leave.
Can employees take annual leave when furloughed?
At this stage we’re not sure. They will continue to accrue annual leave, but the taking of annual leave might interrupt the 3 week minimum that an employee must be furloughed for, which may mean you can’t claim the grant. The Government announced that annual leave that could not be taken because of furlough leave could be carried over in to the next two annual leave years.
My employees TUPE’d after 28 February 2020, can they be placed on furlough leave?
On a strict interpretation of the current guidance published by HMRC, these employees would fall outside of the scheme. However, we await further guidance.
What happens to members of staff who are on maternity leave?
The usual rules apply. Once an employee returns to work from maternity leave, they can be furloughed. Employers should be cautious about bringing employees back from maternity leave early to furlough them. HMRC is likely to investigate businesses to ensure that the scheme has not been abused.
What happens when the furlough scheme ends?
You should use this time whilst employees are on furlough leave to prepare forecasts of what you need to save until you anticipate that business will return to normal. It may be prudent to start looking how you might negotiate a reduction of hours or a reduction of salary with employees when they return from furlough leave, before considering whether you will need to make redundancies. If you are considering redundancies then please read our guidance on the process here https://www.bannerjones.co.uk/for-business/services/employment-law/redundancies-and-reorganisations.