The Coronavirus Job Retention Scheme (“the Furlough Scheme”) is up and running and employers can now submit their claims for reimbursement from HRMC through the online portal. This follows a fairly tumultuous period where the rules of the Furlough Scheme have been unclear and occasionally changed overnight. However, it is hoped that we have now reached a period of stability where there is some certainty about the arrangements that employers should have in place in order to make a valid claim through the Furlough Scheme and how furlough arrangements will work over the next couple of months.
So, in the hope that we are now fairly certain of at least some of the answers[i], we have a look at some of the FAQs we have been regularly encountering below. The full government guide can be found here.
What is furlough?
Furlough literally means “temporary leave of absence”.
Prior to the coronavirus outbreak, it was not a term in common use in the UK and had no legal meaning here. The process has been entirely constructed by the government in an attempt to preserve businesses, and jobs, that that would otherwise have been in jeopardy at this unique time with the overall aim of protecting the UK economy. Due to the need for haste, there has been a lot of uncertainty and ambiguity about the practical implications of the Furlough Scheme which are gradually being clarified through a series of government updates.
How does furlough work?
An employee agrees not to come to work, or perform any duties for their employer whatsoever (although training is permitted), because of circumstances related to the coronavirus outbreak. Otherwise they remain an employee of the business; their continuous service and holiday entitlement continue to accrue and they will have the right to bring employment tribunal claims if their employment rights are not adhered to. Provided that they have this agreement in place, the employer can claim certain prescribed amounts of wages back through the government portal here.
How long does the Furlough Scheme last?
This is a temporary scheme currently running for the recoupment wage costs over the period 1 March 2020 to 30 June 2020, but the government has said that it may be extended if necessary.
Does the furlough period have to last for the duration of the Scheme and can staff be rotated?
Employers do not have to furlough staff for the entirety of this period and can rotate staff on furlough. However, in order to recoup wages, it is necessary for each staff member to be furloughed for a minimum period of three weeks.
Who can claim through the Furlough Scheme?
In order to claim an employer must have:
- created and started a PAYE payroll scheme on or before 19 March 2020
- enrolled for PAYE online
- a UK bank account
Any entity with a UK payroll can apply, including businesses, charities, recruitment agencies and public authorities.
Can all staff be furloughed?
All employees can be furloughed provided that they were on your PAYE payroll on or before 19 March 2020 and were notified to HMRC on a RTI submission on or before 19 March 2020. (Note this is a revision from the previous date of 28 February 2020).
In addition, employees who left employment on or after 28 February 2020 but were on an RTI submission on or before 28 February 2020, can be re-employed and placed on furlough if the reason for this is due to the coronavirus outbreak. However, there may be employment law implications in doing this. Employers should fully consider the potential legal consequences and take appropriate advice where required.
Employees includes the following categories:
- Individual employees (such as nannies, gardeners etc)
- Apprentices (although apprentices must be paid at least the apprentice minimum wage for all time that they spend training)
- Casual employees on zero-hour contracts
- Company directors (who may undertake certain limited statutory duties whilst furloughed such as filing company accounts).
In addition office holders, salaried partners, agency and other workers may be furloughed as long as they meet the PAYE requirements.
Do I need a furlough agreement?
Not necessarily, but it is a good idea. It is clear that the employer must have confirmed in writing to the employee that they have been furloughed in a way that is consistent with employment law and a record of this must be kept for 5 years.
There is conflicting guidance from the government as to whether or not the employee must have agreed in writing not to work for the employer. The Treasury direction of HMRC on the implementation of the Furlough Scheme issued on 15 April said that the employee must respond in writing, but the latest HMRC guidance (updated after the Treasure direction) states the employee does not have to give a written response. Clear as mud then!
Reading between the lines, we interpret this as: Ideally you will have the employee’s written agreement not to work, but if you have not, the fact that the government have it written on their website that the employee does not have to provide a written response ought to be a good defence to any HMRC investigation. Maybe take a screen shot just in case they change it tomorrow.
Generally, it will come as no surprise that we advise that furlough arrangements ought to be confirmed in writing anyway in the interests of certainty; to ensure there is clarity over the circumstances in which wages can be reduced and how employees will be paid, and also what options will be open to the business following the end of the Furlough Scheme. This may be in the form of a furlough agreement, or there may be other contractual options open to employers. Employers who are concerned about this should give us a call to discuss your options.
Can staff be furloughed from more than one employer?
Yes if the employee already had more than one employer prior to the furlough. However, employers should not re-employ employees who have already been furloughed by their new employers and make a claim through the Furlough Scheme.
How much do I have to pay my staff whilst they are furloughed?
Under the Furlough Scheme, employers can claim a grant that covers 80% of their usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and pension contributions (up to the level of the minimum automatic enrolment employer pension contribution). The government has produced a calculator for the purposes of calculating usual monthly wage costs here.
However, unless you have a lay-off or short-time working clause in contracts of employment that you could utilise as an alternative, there is no contractual obligation for an employee to simply accept a pay cut to 80%/£2,500 per month purely because this is the amount that can be recovered under the Furlough Scheme. Therefore, employee agreement is required. This shouldn’t be that hard to obtain in the circumstances (i.e. 80% wages is a lot more favourable than redundancy and no wages), but it should be recorded in writing in order to ensure that you do not find yourself presented with an unlawful deduction from wages or breach of contract claim at a later date. Alternatively employers can continue to pay their employees 100% of their wage and make up the 20% difference.
Can dividend payments be claimed back through the Furlough Scheme?
No. Dividends are not wages and therefore are not recoverable.
Then can you add another question below the reduced hours question:
If I top my employees wage up to 100%, can they undertake 20% of their duties?
No. They employee should not perform any services for the business whilst furloughed.
There are some staff that I need to retain on reduced hours, can I furlough part of their role so that they do not lose out in comparison to their furloughed colleagues?
Unfortunately not. If an employee is working, but on reduced hours, or for reduced pay, they are not eligible for the Furlough Scheme. This can create a bit of a management headache for employers, for example, if you need a member of staff to reduce their hours/wage to 80% or less whilst continuing to work. Please give us a call to discuss issues and strategies that could be deployed in this situation.
Some of my staff are paid the national minimum/living wage. Can they still be furloughed at 80%?
Yes as long as you are not requiring them to undertake any training. If they are training, they will need to be paid at least the national minimum/living wage.
Can an employee be on holiday and furlough at the same time?
Yes the government has now confirmed this. However, you must pay your employees their full normal wage (100%) whilst they are on annual leave. Helpfully they have also stated that they can review this at any time (another screen shot may be required here).
Can an employee be on sick leave and furlough at the same time?
No. Employees who phone in sick are entitled to SSP or their contractual sick pay entitlement. Employees who are self-isolating or shielding are also entitled to SSP. However, employers can chose to furlough employees who are off sick, self-isolating or shielding instead. They will then be furloughed and not on sick leave. If an employee becomes sick whilst furloughed, the furlough can continue and the employer does not have to take them off furlough and place them on sick leave.
Can an employee on maternity/paternity/adoption leave be furloughed?
Employees who are entitled to the statutory minimum amounts whilst on leave should not be furloughed in order to obtain a higher wage payment than they would otherwise have been entitled to. However, employers who offer enhanced maternity/paternity/adoption pay can claim the enhanced wage cost through the Furlough Scheme.
Can I renew the term of a fixed-term contract whilst an employee is furloughed?
Yes and the contract must be extended in order for the employee to continue to receive the furlough payment.
Can an employee who has been furloughed get another job?
Yes they can, provided that their employment contract with you does not prohibit them from doing so. Many employment contracts state that employer agreement/consent is needed to obtain another job. In which case the employee should request permission or risks being in breach of contract and subject to disciplinary proceedings.
What happens when the Furlough Scheme ends?
We do not know when we will come out of the other side of this and what businesses and the workplace will look like. We do not know if businesses will be able to resume trading (at the same or reduced levels) at the time the Furlough Scheme ends. Some employers without the contractual right to impose lay-off or short-time working have added this to their furlough agreements so that it is an available option whilst phasing back to usual operations, but many will not have done so. Employers may need to start to think about reorganising their business operation prior to the end of the furlough period.
Special rules apply to pregnant employees who are unable to work for health and safety reasons meaning that they are likely to be entitled to full pay, unless otherwise agreed, until they are able to start maternity leave.
Please give us a call if you would like to discuss any legal considerations and pitfalls in more detail.
Am I still able to make redundancies?
Yes. There is no change to the general legal position in relation to redundancies. Businesses with cash-flow issues may not be able to fully utilise the Furlough Scheme and may need to consider other options. Getting redundancy procedure right can be tricky and there may be unfair dismissal arguments available to employees who are made redundant where their employer could have afforded to furlough them instead. Please give us a call for an initial free chat if you would like to discuss further.
I’m buying a business with staff on furlough, will I be able to continue this arrangement?
Yes. A new employer is eligible to claim under the Furlough Scheme in respect of the employees of a previous business transferred after 19 March 2020 if either the TUPE or PAYE business succession rules apply to the change in ownership.
This article is based on information available on 23 April 2020. If you would like more information on the content of this article or employment law generally, please contact Melanie Rowe on 07854 029922 or by email at email@example.com
[i] Information based on the government guidance available on 23 April 2020