Furlough Leave (Job Retention Scheme) – Q & As
By Catherine Addley | Paralegal
Employment / Commercial
What is Furlough Leave?
Furlough leave is a form of paid leave, announced by the Government on 20 March 2020 under the Coronavirus Job Retention Scheme and intended to cover those who “would otherwise have been laid off during this crisis” (Source: COVID-19: support for businesses guidance). The Scheme enables organisations to send employees home with their agreement and to pay them 80% of their salary (subject to a £2,500 cap a month). Employers can then claim these sums back from HMRC.
Who is the Scheme Open to?
The Scheme is open to all UK employers that had created and started a PAYE payroll scheme on or before 28 February 2020 and have a UK bank account.
This includes businesses, charities, and recruitment agencies with agency workers paid through PAYE, and public authorities. However employers in receipt of continued public funding for staff costs should carry on paying staff as usual and not furlough them.
The Scheme should be up and running by the end of April and is currently intended to last until 31 May 2020. Employers will be able to make backdated claims to 1 March 2020, for any staff already on lay off or made redundant as a result of the crisis.
On Thursday 26 March, HMRC published guidance for employers on Scheme (Guidance):
https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme and this has provided some clarification. There still remain some grey areas and questions unanswered.
Who can be furloughed and for how long?
- Full-time employees
- Part-time employees
- Employees on flexible or zero-hour contracts
provided they were on the payroll as of 28 February 2020.
Employers must furlough staff for a minimum of three weeks.
Individuals who were made redundant post 28 February 2020 can be furloughed if they are re-engaged by their former employer.
Employers do not need to place all their employees on furlough.
How does an employer decide who to put onto furlough leave?
An employer could initially ask for volunteers but this might not work – it might receive too many or too few requests.
The procedure that an employer follows to decide which employees to furlough is likely to depend on its financial situation:
- If it needs to very urgently furlough employees or make them redundant in order to be able to continue to trade, a limited selection procedure carried out on an urgent basis is likely to be acceptable.
- Where it does not have any immediate financial concerns, it is likely to be more reasonable for it to follow a more comprehensive procedure – for example it could draw up a matrix of objective criteria in a similar way to redundancy scoring.
Regardless of the situation, employers should ensure that their decisions on who to select for furlough leave are:
- Justifiable; and
- Not based on discriminatory criteria, except where such discrimination is likely to be justified.
What steps must employers take to put employees on furlough leave?
The Guidance states that employers should discuss the proposal with staff and make changes to the employment contract by agreement.
It is a condition of eligibility for reimbursement that furlough leave is confirmed to the employee in writing.
Employers will need to:
- Decide which employees to designate as furloughed employees
- Notify furloughed employees of the intended change
- Consider whether it needs to consult with employee representatives or trade unions (see question below about putting 20 or more employees on furlough leave)
- Agree the change with the furloughed employees.
- Confirm the employee’s new status in writing. This is an eligibility requirement for accessing the subsidy, and a record must be kept of this correspondence Ideally, the employer should advise how long it expects furlough leave to continue but this may be difficult in the current climate. Employers may wish to put employees on furlough leave for an initial period (minimum of 3 weeks), subject to review
- Submit information to HMRC about the employees that have been furloughed and their earnings.
Will employers need to collectively consult if they intend to put 20 or more employees on furlough leave?
The Guidance has confirmed that if sufficient numbers of employees are involved then it may be necessary to engage in collective consultation to procure agreement to change the employees’ terms. Seeking legal advice is strongly recommended.
Can a Furloughed Employee Work?
A furloughed employee cannot generate revenue or provide services for or on behalf of the organisation who furloughed them but they can take part in volunteer work or training.
If an employee has multiple employers they can be designated a ‘furloughed employee’ for each job.
What is the 80% (or £2,500 cap) made up of?
On 26 March 2020, the Government announced that furloughed earnings are calculated using the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated employer NI contributions and minimum automatic enrolment employer pension contributions.
Fees, commission and bonuses should not be included.
Furloughed earnings are subject to Income Tax, National Insurance, and Pension contributions (if applicable) as usual.
- For salaried employees, the calculation is based on an employee’s actual monthly wage, before tax.
- The employee has variable earnings then:
- If the employee has been employed for a full twelve months prior to the claim, it will be the higher of the same month’s earnings from the previous year, or the average monthly earnings from the 2019/20 tax year
- If the employee has been employed for less than a full twelve months prior to the claim, the claim will be for an average of their monthly earnings since they started work.
- The employee only started in February 2020, use a pro-rata for their earnings so far to claim.
Note: Employees are only entitled to National Minimum (NMW) or National Living Wage (NLW) if they are working. If the 80% will drop them below that threshold, an employer can pay the lower rate if they are not working but if they are required, for example to complete online training courses whilst furloughed, an employer must pay them at least NMW / NLW for the time spent training.
If an employer wishes to top up an employee’s salary beyond the 80%, it can but there is no obligation to do so.
Can an employer rotate furlough leave between its employees?
Presently, there does not appear to be anything in the Government guidance suggesting employees cannot move employees on and off furlough leave provided that three week minimum furlough period is complied with.
Some employees are already on leave – can they be furloughed?
Employees who are on sick leave or self-isolating should receive statutory sick pay (SSP). They can be furloughed once they have recovered or are no longer self-isolating.
Employees who are shielding can be placed on furlough.
Can employees on furlough leave be made redundant?
Yes. Note that the usual processes and procedures regarding redundancy remain in place. If the proposal is to make 20 or more redundancies, the collective consultation requirements will kick in and legal advice is strongly advised.
We want to let you know that we are here, if you require any further information our Employment Team can offer advice or guidance during this period of great uncertainty. Please call us on 01603 751926 or email [email protected]