On 20 March 2020 the government announced the launch of its Coronavirus Job Retention Scheme, which is intended to pay employees who would otherwise be redundant or subject to a requirement to remain away from work without pay and are instead designated as "furloughed". Some brief details have been included in the Government's COVID-19 advice for employers, employees and businesses.
The Government guidance refers to employees who would have been "laid off". This could be confusing, as this term carries a specific technical meaning in UK employment law. We do not believe that the government mean it in the technical sense.
On 26 March, HMRC published guidance on claiming wage costs through the scheme. This article takes account of that guidance.
We are receiving a number of enquiries from clients and have put this document together to answer some of the most frequently asked questions.
Who does the scheme apply to?
The scheme will apply to all UK employers and will include, for example, companies, partnerships, LLPs, charities and sole traders. Public sector organisations are included but the government expects that not many of them will use the scheme, as the majority of public sector employees are providing essential public services or contributing to the response to the COVID-19 outbreak.
It will cover full-time and part-time employees, employees on agency contracts (if they are not working) and employees on flexible or zero hour contracts. It will only apply to employees who were on the payroll on 28 February 2020.
How long will it last?
It will commence with effect from 1 March 2020 and will last for at least three months (i.e. to the end of May 2020). It will be extended if necessary.
How will it work?
HMRC will reimburse employers for 80% of furloughed employees' usual monthly gross wages up to £2,500 per employee per month, plus the associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions. Employees will stay on the payroll while they are furloughed. The payment will operate as a grant, not a loan, and grants should be available by the end of April. There is no limit on the amount of funding that can be given to an employer. Employers will have to submit information to HMRC (via an online portal that is being set up urgently) regarding employees and their earnings.
How do we furlough an employee?
Employers have to designate employees as "furloughed workers" and notify them. This is stated to be subject to normal employment law and may require negotiation, which means that their consent will be required unless there is a lay-off clause in their contract of employment. Very few contracts include such a clause.
Generally this will require employers to consult with employees and seek their agreement to be furloughed. It is likely to be necessary to advise employees as part of those discussions that an alternative would be for the employer to consider redundancies, otherwise there may be no incentive for them to accept the reduction in pay. There is debate over whether or not commencing such discussions may require collective consultation in circumstances where at least 20 employees may be furloughed at one geographical establishment. It would be advisable to take specialist advice in such situations as, depending on the circumstances, there may be options an employer can use to implement furlough quickly.
Such consultations should be followed up with a letter explaining how the scheme will apply to the employees, and asking them to sign and return a copy of the letter indicating their agreement.
Can employees make a request to be furloughed?
Employees have no right to ask to be furloughed. However, one way of employers potentially avoiding cumbersome consultation requirements would be to go out to employees and seek volunteers to be furloughed prior to entering into formal consultation.
What is included in the £2,500?
The £2,500 is gross pay and fees, bonuses and commission should not be included. The employee's actual gross salary before tax as at 28 February 2020 should be used to calculate the 80%. Employers will also be able to claim the associated employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employees will be taxed as normal on the pay they receive.
If the grants are not available until the end of April, what happens in the meantime? Do employers have to continue paying furloughed employees until they start receiving grants?
If employees have agreed to be furloughed then the employer should be able to move straight to paying 80% from the date agreed. The employee will have contractually agreed to the reduction in pay so there should be no unlawful deductions or breach of contract issues.
Does the scheme cover employees on maternity leave?
The HMRC guide suggests that employees on maternity leave can be furloughed and that if employers offer enhanced contractual pay to women on maternity leave, this can be included as wage costs that can be claimed through the scheme. It is not clear whether an employee would have to return from maternity leave in order to be furloughed. The guidance states that the same principles apply to contractual adoption, paternity or shared parental pay.
What happens if there is a salary sacrifice scheme in place?
Depending on the wording of the scheme, employees may be able to cancel their salary self-sacrifice arrangement in order to increase their pay and thereby receive a higher amount. This may well be the case if for example an employee has entered into a salary sacrifice arrangement in return for childcare vouchers, which they will not be able to use while their child's nursery is closed as a result of COVID-19.
Do we have to top up wages to 100%?
Employers can top up wages if they want to but there is no requirement to do this.
How will the scheme affect employees' entitlement to the national minimum wage?
Since an employee will not be working, we do not consider that they will be entitled to the national minimum wage while they are furloughed.
Can employees work while they are furloughed?
Employees will not be able to do any work for their employer during this time. Managers will therefore need clear instructions that they cannot just call on furloughed employees if they need them to do some work. However, employees can take part in volunteer work. They can also complete training but must be paid at least the national minimum wage for the time spent training.
Can furloughing be backdated in relation to employees who have already been made redundant?
The scheme covers employees who have been made redundant since 28 February 2020, if they are rehired by their employer.
Can employees move on and off furlough leave?
Not all employees have to be furloughed, and employees can move on and off furlough leave as the workload changes. However, the minimum period on furlough leave is three weeks.
What happens at the end of the furlough period?
The expectation is that employees will go back to normal working hours at the end of this period. However, the period could be extended.
Will employees retain their continuous employment?
We expect that they will have continuous employment throughout the period when they are not working since the period of furlough will be treated as a temporary cessation of work.
Employers understandably have many questions about how the scheme will work in practice. HMRC will issue more guidance on how employers should calculate their claims before the scheme goes live.
In the meantime, if you have any queries please get in touch with your usual Womble Bond Dickinson contact.