Coronavirus Job Retention Scheme: Furlough Leave
On 20 March 2020 the Chancellor of the Exchequer, Rishi Sunak, announced an unprecedented support package to support UK businesses and employees suffering from the economic effects of Covid-19. The most significant revelation was undoubtably the introduction of the Coronavirus Job Retention Scheme which created the new employment status of ‘furloughed worker’ and promises to reimburse employers for a proportion of that individuals wages.
What is ‘furlough’?
Before 20 March the term ‘furlough’ had no technical meaning within UK employment law and so has been created purely to protect those employees who face a genuine threat of redundancy as a result of the current economic uncertainty. These workers will be entitled to benefit from the new scheme in an effort to preserve their employment and, though much is still uncertain, the following high-level principles have been announced:
- The employee remains employed by the employer but certain contractual rights and obligations are suspended;
- HMRC will reimburse 80% of furloughed workers’ wage costs, up to £2,500;
- Employers can choose to ‘top-up’ the outstanding 20% but do not have to. Employers will need the employee’s agreement to only pay 80% of their entitlement, however, this can be obtained when negotiating with the employee to categorise them as a ‘furlough worker’; and
- The scheme will run for 3 months from the 1 March 2020 at which point it will be reviewed.
Current guidance is that all UK businesses are eligible. Although not confirmed this suggests the scheme is available to all employers whether they are a limited company, sole trader, partnership, or charity. What is clear is that only employees who are not working will be eligible to be considered a furlough worker. As of yet the government have not released information of any further eligibility requirements or any steps they are taking to prevent employers abusing the system.
If the employment contract has a right to remove work from the employee then employers will have the power to unilaterally categorise employees as furlough workers by notifying them. Where this is not the case, however, the change in status will be subject to existing law and so negotiation and employee agreement will be necessary. For struggling businesses, though, negotiation may not be so difficult as the alternatives open to the employee may involve redundancy, lay-off, or some other undesirable arrangement.
It is important to remember that any contract variation made to take advantage of the Coronavirus Job Retention Scheme, whether unilateral or through agreement, will require the employer’s agreement. Employees cannot categorise themselves as furlough workers.
Once the employer has categorised certain employees as furlough workers and the relevant contractual changes have been made the business needs to submit these details to a new HMRC portal. This portal is not yet operational, however, it is intended to be available in a couple of weeks, with reimbursements being made by the end of April.
There is still much uncertainty surrounding the reimbursement process and payment which the government has promised:
- It is questionable whether businesses will be entitled to any reimbursement for payments made between the backdated 1 March and introduction of the scheme on 20 March as no employees were categorised as furlough workers prior to the later date.
- ‘Salary’, ‘wage costs’, and even ‘wage for all employment costs’ have been used interchangeably without clarity as to how far this includes PAYE deductions, NICs, pension contributions, or contractual benefits.
- HMRC will reimburse 80% of the employee’s salary, however, further details are needed to clarify how this salary figure is to be calculated. For example, it may be that salary as at 1 March 2020 is used and HMRC will reimburse 80% of this. However, an approach like this may ignore contractual changes that many businesses have introduced in recent weeks and that many of the employees most heavily affected by coronavirus are on varying rates of pay. It may be more appropriate in some scenarios, therefore, to calculate salary based on average earnings, for example over the 12 weeks preceding 1 March.
Should I furlough my employees?
The Coronavirus Job Retention Scheme is an unprecedented step by the government and useful tool for employers, however, when considering utilising it there are some important points to consider first:
- Uncertainty – As we have discussed above there is still much about the new scheme we are unsure of and while it may be a lifeline for some it will not be universally applicable. Please feel free to contact us if you would like to discuss the options available to your specific circumstances.
- People management – The thought of receiving 80% of one’s salary without having to work may sound appealing to some. Conversely, having to work, potentially at greater risk of actually contracting Covid-19, in order to receive 100% of your salary may be perceived as rather unfair. This is especially the case where companies have already made variations to employee salaries which, depending on how furlough pay is calculated, could lead to employees receiving the same or more pay for not working. Particular care must be given when communicating with employees and coming to decisions which might be perceived as unfavourable treatment. Relations and morale may be further strained where those being retained are the more experienced or profitable employees while those ‘benefiting’ from the scheme are likely those the less essential or successful employees. Our employment team have experience assisting with complex management situations so please contact us if you have concerns.
For further information please contact our employment team
Claire Knowles - Partner
Mark Alaszewski - Associate
Rebecca Mahon - Solicitor
Adam McGlynn - Trainee Solicitor