Furlough and the Coronavirus Job Retention Scheme

April 3, 2020

Questions & Answers

In these difficult and challenging times the Government has announced unprecedented support to help employers retain their employees.  The Government has introduced the ‘Coronavirus Job Retention Scheme’ under which employers, whose business operations have been severely affected by coronavirus (COVID-19), can apply for a grant to help pay for part of their employees salaries.
The Government’s guidance on the scheme can be found at:-

https://www.gov.uk/guidance/claim-for-wage-costs-through-the-coronavirus-job-retention-scheme

We set out below some key aspects of the scheme.

What is the Coronavirus Job Retention Scheme

The Coronavirus Job Retention Scheme is a temporary scheme which will enable UK employers to claim a grant from the Government for 80% of an employee’s regular wage (capped at £2,500) per month (plus the associated employer national insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage) for any employee who has been furloughed.

The scheme is available from 1 March 2020 for at least three months.  The purpose of the scheme is to encourage employers to retain employees rather than making them redundant.  The scheme is trying to save jobs.

What is furlough

In order to make a claim under the scheme the employee must be designated as a furloughed employee.

Furlough is a new legal concept in UK employment law.  The Government guidance states that furlough means ‘Employees on a leave of absence’.  In practise this is likely to mean employees who have to take a temporary leave of absence from work due to economic reasons, for example the closure of the workplace or reduction of work due to the coronavirus crisis.

Employees who are furloughed remain employed and remain on the payroll.

Who does the Scheme apply to

Employers

The scheme is open to all UK organisations:

• with employees (including business, charities, recruitment agencies (agency workers paid through PAYE) and public authorities);
• who had created and started a PAYE payroll scheme on 28 February 2020; and
• who have a UK bank account.

Employees

This scheme covers all employees:

• who were on the payroll on 28 February 2020 who are furloughed;
• whether they are full or part time including those on agency contracts and flexible or zero hour contracts.

Employees hired after 28 February cannot be furloughed or claimed for under the scheme.

Can you furlough employees who are on sick leave or self-isolating or have to be shielded

Those employees on sick leave or a period of self-isolation should still receive statutory sick pay (and contractual sick pay depending on the terms of your policy) but they can be furloughed once their sick leave or self-isolation period has ended.

Employees who are shielding in line with public health guidance can be placed on furlough.

Can a furloughed employee still do work for the employer

No.  When on furlough leave an employee cannot undertake any work for the employer.

Can you still apply for the grant if the employee is working reduced hours

No.  If an employee is working reduced hours or for reduced pay they will not be eligible for the scheme.

How much can be claimed

Employers can claim a grant to cover the following:-

• 80% of the employee’s regular wage or £2,500 per month whichever is lower; and
• The associated employer national insurance contributions; and
• The minimum automatic enrolment employer pension contributions on the subsidised wage.

The employer cannot claim fees, commission or bonuses.

If an employee’s pay varies then, if the employee has been employed for 12 months prior to the claim the employer can claim for the higher of either:-

• The same month’s earnings from the previous year; or
• The employee’s average monthly earnings from the 2019/20 tax year.

If the employee has been employed for less than a year, the employer can claim for an average of their monthly earning since they started work.

Does the employer have to top up the wages to 100%

No.  The employer can choose to top up the wages but they do not have to do so.

How long can an employee be furloughed for

To be eligible under the scheme the employee must be furloughed for a minimum period of 3 weeks but they can be furloughed for longer.  The scheme is currently only available until 31 May so any furlough period should not extend beyond this date.

Placing employees on furlough

According to the guidance employers should discuss with their staff and make any changes to the employment contract by agreement.

When employers are making decisions in relation to the process, including who to offer furlough to, equality and discrimination laws will apply in the usual way.

If sufficient numbers of staff are involved (i.e. 20 or more) it may be necessary to engage the collective consultation process to procure agreement to the changes of the terms of employment.

To be eligible for the subsidy employers should write to their employee confirming that they have been furloughed and keep a record of this communication.

How does the employer claim the grant

The Government are in the course of creating a portal which employers will use to apply for the grant.  The portal is expected to be up and running by the end of April.

In order to claim the grant employers will need to designate affected employees as furloughed employees and notify them of their change in status in writing.

Employers can only make a claim every 3 weeks. A claim should be made in accordance with actual payroll amounts at the point at which the payroll is run or in advance of an imminent payroll.

Can an employer delay paying an employee if the grant is not received

The guidance is silent on this point but we take the view that the employer is still under a legal obligation to pay the employee’s wages (capped at the 80%) on the usual pay date even if they have not yet been reimbursed by the Government.

Employers who do not think they will be able to pay employees on the usual pay date will need to reach an agreement with their employees that they will not be paid until the reimbursement is received.

Does the employer have to place all of its employees on furlough

No.  The employer may not need to place all of its employees on furlough leave. The employer will however need to keep a record of their decisions as to their reasoning for selecting employees to be furloughed.

There remains many unanswered questions about the scheme and it is anticipated further guidance will be forthcoming as the situation develops.

If you would like employment advice regarding the scheme or any other issues relating to employment matters please contact us to arrange a telephone/video appointment.

Please note the above is for information purposes only and is intended to be a short summary.  It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.

Author: Jacqueline Penfold. Litigation and Employment, Partner