The Coronavirus Job Retention Scheme (the “Furlough Scheme”) is up and running and employers can now submit their claims for reimbursement from HMRC through the online portal. On 12 June 2020, the government released guidance on the significant changes it is making to the Furlough Scheme, including the introduction of “flexible” furlough, and we have updated our answers to the FAQs we have been encountering in light of this new guidance below. The full, updated government guidance 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 UK 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 have been clarified through a series of government updates.
How does furlough work?
From 1 July an employee can either agree to reduce their normal working hours (flexible furlough), or not to perform any work for their employer whatsoever, although training is permitted (full furlough), because of circumstances related to the coronavirus outbreak. They will 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 an employee has agreed to be furloughed, an employer can claim certain prescribed amounts of their wages back through the government portal here.
How long does the Furlough Scheme last?
This is a temporary scheme currently running for the recoupment of wage costs over the period 1 March 2020 to 31 October 2020.
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. In order to recoup wages for employees that are placed on furlough between 1 March and 30 June 2020 however, it is a requirement that each employee be furloughed for a minimum period of three weeks.
From 1 July until the end of the Furlough Scheme on 31 October 2020, claims can only be made with respect to the wages of employees that have previously been furloughed and therefore, in view of the three week minimum period, employers will not be able to claim for the wages of any employees that were not placed on furlough before 10 June 2020. In this sense, from 1 July therefore, the Furlough Scheme closes to new entrants (with the exception of those returning from parental leave). In relation to employees who are eligible to be furloughed from 1 July however, there will no longer be a minimum furlough 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.
The government have announced that from 1 July until the end of the Furlough Scheme on 31 October 2020, claims can only be made with respect to the wages of employees that have previously been furloughed and therefore, in view of the three week minimum period, employers will not be able to claim for the wages of any employees that were not placed on furlough before 10 June 2020. In this sense, from 1 July therefore, the Furlough Scheme closes to new entrants.
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.
The levels of work within my business are such that I need some employees to return to work, but on reduced hours, can I furlough part of their role?
Yes, from 1 July 2020. This is a significant change to the Furlough Scheme. From 1 July 2020, employers will be able to agree with furloughed employees, to bring them back to work on such hours as suit the current needs of their businesses, while still being able to claim a grant under the CJRS with respect to the remainder of the employees’ normal working hours for which they remain furloughed. Importantly, employers will be responsible for paying such employees’ wages while they are working, as well as the employer NICs and pension contributions due on those wages. If circumstances dictate that an employer does not require its employees to return even on a “flexible”, “reduced hours” basis, then they can continue to claim the grant for the entirety of their employees’ normal working hours until the CJRS closes on 31 October 2020.
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. Records of hours worked must be kept for 6 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.
If an employer is looking to bring employees back to work on “reduced hours”, taking advantage of the new, “flexible” scheme, then they should ensure that the new working arrangements are confirmed in writing, in accordance with employment law.
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, from 1 March to 31 July 2020, employers can claim a grant which covers 80% of a furloughed employee’s monthly wages, up to a monthly cap of £2,500, as well as employer NICS and pension contributions on those wages (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.
From 1 August 2020 to 31 August 2020, the grant available in respect of a furloughed employee’s wages remains the same, however, employers will be required to pay the employer NICs and pension contributions due on such wages.
From 1 September to 30 September, employers can claim a grant which covers 70% of a furloughed employee’s wages up to a cap of £2,187.50. As well as paying the employer NICs and pension contributions due on such wages, employers will be required to top up the furloughed employee’s wages to ensure they receive 80% of their wages up to a monthly cap of £2,500.
From 1 October until close of the CJRS on 31 October, employers can claim a grant which covers 60% of a furloughed employee’s wages up to a cap of £1,875. As well as paying the employer NICS and pension contributions due on such wages, employers will be required to top up the furloughed employee’s wages to ensure they receive 80% of their wages up to a cap of £2,500.
Where an employee is “flexibly” furloughed, all the aforementioned caps are proportional to the hours not worked.
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, solely 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 (80% of 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 wages and make up the difference.
Can dividend payments be claimed back through the Furlough Scheme?
No. Dividends are not wages and therefore are not recoverable.
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).
However, an employer should not flexibly furlough an employee purely to cover holiday that they have booked. This would be classed by HMRC as an abuse of the scheme.
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 12 June 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 firstname.lastname@example.org
[i] Information based on the government guidance available on 12 June 2020