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Furlough and the job retention scheme - advice for employers

In this fast moving situation it is important that employers and businesses remain able to adapt and implement developments rapidly. Nick Jones, Head of Employment and Business Support provides an overview of the government’s furlough job retention scheme.

Furlough and the job retention scheme

Last Friday the Government announced the introduction of a new job retention scheme. The aim is to support employers and employees, to reduce levels of redundancy and support the economy. The scheme provides support by funding a portion of an employee’s wages for those employees who would otherwise be out of work because of Coronavirus.

The scheme is open to all UK businesses. The government released guidance on the scheme and recommends that employers:

  • Designate affected employees as “furloughed workers” and provide them with notice of this change
  • Provide information to HMRC about the employees and their earnings through a new online portal (yet to be set up – further details to be provided)

HMRC will then reimburse employers for 80% of the earnings of the furloughed worker’s wages costs, up to a cap of £2,500 per month for each worker. However, at present existing systems are not able to facilitate payments to employers, but HMRC is currently working on setting up a new system that employers will be able to access.

Presently payments will be available from the end of April and can be backdated to 1st March 2020. The job retention scheme will be open for 3 months, to 31st May, but the government has said that it will be extended if necessary.

Employee agreement is needed

The engagement of an employee is governed by the contract of employment. Therefore, if a change in status is required (placing the employee on furlough leave and reducing their pay), individual agreement should to be obtained from each employee. The government guidance states that “changing the status of employees remains subject to existing employment law and, depending on the contract, may be subject to negotiation”. However, the concept of ‘furlough’ is uncommon in UK employment law and it would be very unusual for a UK employment contract to contain a contractual right to furlough an employee.

Employees are highly likely to agree to furlough, because at present their alternative options are unpaid leave or redundancy. However, employers should take care to talk to staff and obtain agreement, otherwise they risk claims that they have breached mutual trust and confidence by enforcing furlough or by reducing pay. Additionally, if agreement is not obtained employees will have valid claims for breach of contract and unauthorised deductions from pay.

Employers should make it clear to employees, when obtaining agreement, that any period of furlough may be extended, and that employees can be recalled from furlough as and when necessary.

Can a furloughed employee work?

The guidance makes is clear that this is not possible. To qualify for the scheme the employee must not undertake any work for the employer while they are furloughed.

How much is paid?

The payment of up to £2,500 is to cover all of the employer’s employment costs. It is expected that employers will be able to deduct employer national insurance contributions and any employer pension contributions from the payment, which will of course reduce the net amount in the employee’s hand. The payments to employees will also be subject to PAYE income tax deductions and employee national insurance. We are however expecting more guidance to come from HMRC on how this will actually work.

Holiday entitlement

Furloughed employees will remain employed and therefore will continue to accrue entitlement to paid annual leave in the normal way.  They will also be entitled to their other employee benefits.

Employers will of course have the option of requiring furloughed workers to take periods of annual leave during times that they would otherwise be furloughed but will of course have to pay the employee full pay for the leave period and will not be able to claim the pay from HMRC. Employers will therefore have to balance the issues of funding leave during periods when employees would otherwise be furloughed, or funding periods of leave once employees have returned to work. Employers who are working hard to get their businesses back on track after the current crisis will certainly not want lots of staff having accrued periods of leave entitlement that they are all seeking to take in the latter part of the leave year.

What if you make an employee redundant?

Ultimately the government’s intention is that employees who cannot work as a result of Coronavirus should not be made redundant. However, some employers might consider redundancy is the only real option. Care should be taken however. When making an employee redundant employers should consider all alternatives to redundancy. There could be a risk that if furlough is not considered as an alternative, at least in the short-term, this could give rise to liability to claims for unfair dismissal.

Some employers also have enhanced redundancy policies, that provide for a higher level of redundancy payment than the statutory minimum. Some employers might find that employees with long periods of service, and entitlement to higher redundancy payments, might actually be pushing to be made redundant rather than furloughed under the job retention scheme.

Communication is key

It’s likely that some employers will have a mixture of some staff who are furloughed, and therefore not working, and others that continue to work.  There is the prospect that some staff may become disgruntled at having to work whilst others are not.  However, its likely that staff who are working will be relieved that they still have their jobs and are continuing to receive their full pay.  Employers should ensure that they keep clear lines of communication open with all staff and ensure that everyone understands the reasons why some staff are working and some have to be furloughed. Ultimately, employers need to work to engender a feeling of collective responsibility, with everyone working to ensure that the business survives and everyone’s job is retained.

Calculating payments

Difficulties will also arise in areas where employees have irregular earnings that fluctuate. How will a month’s pay be calculated for these staff? We are expecting that further detail will be provided in due course, and we will update you as and when this detail is released.

Long-term sick

Some employers might also find that employees who have been long-term sick might now indicate that they are well and able to return to work, in order to take advantage of furlough pay. Employers are best advised that if an employee is indicating they are fit to return, they should obtain a note from their doctor to confirm they can return. However, if they obtain this, employers are best advised to allow the employee to return. Ultimately, they will be furloughed and entitled to furlough pay, provided the employer is not topping up the 80% of furlough pay to 100%. If doing this for all staff, then this extra payment should also be paid to those returning in these circumstances.

What if employees are self-isolating?

The position on this is not entirely clear at present. Current thinking is that if staff are at home self-isolating as a result of following government guidance, then they would not be entitled to furlough pay. Once they are available for work, but then not able to work because the employer would otherwise lay them off, and provided they are not able to work from home, they would then be entitled to furlough pay.

What if staff have already been dismissed?

Some employers may have already dismissed staff prior to the government’s announcement made last Friday. Employer’s have the option of choosing to re-engage dismissed staff and to place them on furlough leave, with payment backdated to 1st March.

Next steps

Further information on the detail of the job retention scheme will become available in the coming days. We are here to provide support to your business and are available to provide advice on implementation of the scheme, how to obtain agreement from your employees and how to deal with tricky areas. If you have any questions or need support please contact Nick Jones or Cecily Donoghue.

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

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