The Coronavirus Job Retention Scheme is part of the Government’s answer to avoiding economic catastrophe as businesses close at alarming speed.
The basic provision is that the state, through an HMRC administered scheme, will underwrite 80% of the wages of staff who are “furloughed”, but remain employed, up to a monthly limit of £2,500.
The Government has published guidance on the application of its Coronavirus Job Retention Scheme
Who can be furloughed?
An employer can claim in respect of the following employees:
- full-time employees
- part-time employees
- employees on agency contracts
- employees on flexible or zero-hour contracts.
Employees must have been on PAYE payroll on 28 February 2020.
If you have made any such employees redundant since 28 February they may be rehired and placed on furlough.
New hires since 28 February 2020 cannot be placed on furlough, nor can employees who were already on unpaid leave on 28 February 2020.
Employees on sick leave or self-isolating should get Statutory Sick Pay, but can be furloughed after this. Employees who are shielding in line with public health guidance can be placed on furlough.
Is consent of the employees required to furlough?
The guidance makes it clear that changes to the employment contract are required to go on furlough, i.e. an agreement not to work and receive 80% of pay, have to be agreed with the employee.
The need to obtain consent is likely to be the biggest practical challenge faced by employers accessing the scheme; particularly as many employees are now no longer in the workplace. Communicating effectively with staff, to obtain their agreement to enter furlough, has become more impractical.
Choosing whom to furlough
The employer has a discretion as to which employees to furlough but that discretion is subject to equality and discrimination law. It appears that the employer is not required to undertake a quasi-redundancy selection exercise involving selecting criteria and scoring matrices, since staff placed into furlough are not being dismissed. But if the employer undertakes a redundancy exercise at the end of the furlough period, it must not show any bias towards staff who remained in work unless their selection to do so was based on the fair application of objective criteria.
The restriction on work
A furloughed worker must not undertake any work on behalf of the organisation, including an associated entity of the employer. One cannot use the scheme if an employee is still working for reduced pay or on reduced hours. Employees who are on agency contracts must not be working.
Employees when furloughed can undertake voluntary work or training as long as it does not provide services or generate revenue for the employer. If the employer requires the employee to carry out online training it appears that the national minimum wage (NMW) must be paid for the time they are so engaged. Otherwise those on furlough are not working and the NMW does not apply.
Maternity and Statutory Maternity Pay
These payments appear to apply as normal, but if the employer offers enhanced earnings-related contractual pay for maternity leave this can be claimed as a furloughed wage cost. The same proposition applies for contractual adoption, paternity or shared paternity pay.
The application portal is not yet ready and its precise form remains to be seen. The latest guidance gives a list of information an employer will need to make an application:
- ePAYE reference number
- the number of employees being furloughed
- the claim period (start and end date)
- amount claimed (per the minimum length of furloughing of 3 weeks)
- bank account number and sort code
- contact name
- phone number
An employer will also need to calculate the amount it is claiming. It would be sensible to start to draw together all of this information now so that an application can be made as soon as the portal launches.
Further, the guidance states that to be eligible for the subsidy employers should write to their employees confirming that they have been furloughed and keep a record of this communication. Subject to the publication of more detailed rules, all employers should ensure they follow this basic requirement.
What the employer receives
Government guidance describes what the employer receives in the following terms:
“You will receive a grant from HMRC to cover the lower of 80% of an employee’s regular wage or £2,500 per month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that subsidised wage. Fees, commission and bonuses should not be included.”
So it appears that the employer receives wage costs such as Employers’ NI on top of the £2,500 or 80%. The employer then has to pay the 80% or £2,500 per month to the employee, so they get the whole of this subject to tax and their NI.
That does not extend to any payment the employer chooses to make to top up the 80% to 100% or any voluntary automatic enrolment contributions above the minimum mandatory employer contribution of 3% of income. The employer has to pay the NI on the top up and pay the additional pension contributions.
Note that the salary on which the 80% is calculated is the employee’s salary as of 28 February 2020 and does not include commission and bonuses.
Variable pay is addressed in the guidance:
If the employee has been employed for a full twelve months prior to the claim, you can claim for the higher of either:
- the same month’s earning from the previous year
- average monthly earnings from the 2019-20 tax year
If the employee has been employed for less than a year, you can claim for an average of their monthly earnings since they started work.
If the employee only started in February 2020, pro-rata their earnings so far to claim.
Furlough and collective consultation
The guidance says “If sufficient numbers of staff are involved, it may be necessary to engage collective consultation processes to procure agreement to changes to terms of employment.”
Collective consultation is an obligation that arises if an employer proposes 20 or more redundancies within a period of 90 days or less at an establishment. It appears that if an employer is proposing to seek 20 or more employees at an establishment to agree to furlough, for whom the alternative is redundancy, the collective consultation obligations will apply.
Moving in and out of furlough
The guidance says that only one claim can be submitted ever 3 weeks which is said to be the minimum length an employee could be furloughed for. It follows that you can take staff in and out of furlough on a 3-week cycle, or a longer cycle if you wanted to spread the burden of actual work.
Employee rights on furlough
Employees on furlough retain their employment status. At the conclusion of the furlough employees have the same rights as they did previously, including Statutory Sick Pay entitlement, maternity rights, other parental rights, rights against unfair dismissal and redundancy payments.
Again, it must follow that they have continued to accrue holiday entitlement.
Furlough distinct from lay-off and short-time working
Lay off and short-time working are means by which the employer reduces the working hours of some or all of its staff in response to reduced demand or output. It is found in limited industry sectors, such as manufacturing. I do not propose to set out the somewhat technical rules which apply to lay-off and short-time working save to note that it is only normally allowed where contracts of employment expressly permit it.