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A guide for employers to furlough and short term working

COVID-19

The difficulty at this moment in time is that since the governments announcement to the job retention scheme very little by way of guidance has been issued and ‘furlough’ is a new concept with no legal basis or meaning in the UK (at this time), the below detailed information is provided on the basis of employment law principles as we know them. Please note however, they may be subject to change depending on further direction.

WHAT IS HAPPENING IN THE WORLD!

COVID-19 is a respiratory illness caused by a virus called coronavirus. The virus has spread to nearly every country in the world since it first emerged in China at the beginning of the Year and was labelled a pandemic on the 11th March 2020.

Many organisations have been forced to cease trading in order to protect public health whilst others have been forced to significantly scale back operations, the UK itself is in a period of mandatory lockdown its impact being immense on each and every one of us, it does however equally brings added consequences to employers and is potentially the beginning of what can only be described as challenging and worrying times.

On 20 March 2020 the UK chancellor announced that it would introduce a Coronavirus Job Retention Scheme.  

WHAT IS THE CORONAVIRUS JOB RETENTION SCHEME?

The scheme is a legal mechanism introduced by the government that will allow employers to retain employees without requiring them to perform any work yet allow the employer to make a minimum level of salary to the employee.

The purpose behind its introduction is to reduce redundancies and to minimise people being laid off without pay.

WHATS INCLUDED?

Guidance states that the grant from HMRC will 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. Apprenticeship levy is not mentioned. Pay is based on an employee’s regular wage, and excludes fees, commission and bonuses.

Where pay is a fixed salary, the actual salary, before tax, as of 28 February should be used to calculate the 80%.

Where pay varies, and the furloughed employee has been employed for a full 12 months prior to the claim, the employer can claim for the higher of either the same month’s earning from the previous year; or average monthly earnings from the 2019-20 tax year.

If the furloughed employee has been employed for less than a year, the employer can claim for an average of their monthly earnings since they started work. If the employee only started in February 2020, employers can pro-rate their earnings so far.

What is covered by “wage costs”?

The scheme covers minimum automatic enrolment employer pension contributions on the 80% (3% of “qualifying earnings”), but if the employer is making more generous pensions contributions than the statutory minimum then these are not covered.

It is still unclear how benefits and salary sacrifice arrangements will be affected by the Scheme.

WHO CAN APPLY

Under the job retention scheme, all UK employers will be able to access support from the government to continue paying up to 80% on an employee’s salary (capped at £2500) of those employees who would otherwise have been laid off or had their employment terminated following a short term dismissal. These employees will be placed on “furlough”.

WHAT’S THE CATCH?

In order to be able to benefit from the scheme, employers must have had in place a PAYE payroll as at 28 February 2020.

WHEN CAN YOU ACCESS THE SCHEME

The scheme is not up and running yet and is not expected to be accessible until mid to late April. At this time very little guidance has been provided by the government as to the specifics of the scheme, what is known is that payments can be backdated but only where payment has been provided. It is also known that once up and running employers will be required to input their information between 3 and 7 days prior to respective pay dates in order to receive payment into a designated bank account and allow for salary payment dates to be met.

Further information will be provided as soon as better particulars are released.

What do I need to make a claim?

You will need the following:

  • 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

You can only claim every three weeks and the money will be paid via BACS. You must pay the grants received to the employee, less deductions for income tax and NI.

WHAT IS FURLOUGH

It it the term given to leave taken by employees under the job retention scheme. It is an American term and means ‘leave of absence’, it is normally granted by employers due to special needs or circumstances. In this scenario the special need is the lockdown and the required for people to stay home.

When on furlough an employee cannot perform any work, employees must come off furlough for any period of annual leave and or period of notice.

WHAT HAPPENS TO HOLIDAYS?

It is important to note that holiday entitlement will continue to accrue during furlough. Guidance has not yet been released as to whether or not the scheme can be used for making payment of annual leave (with a top up) but it is assumed that this will not be permitted.

The government has announced that workers who have not taken all of their statutory annual leave entitlement due to coronavirus will now be able to carry it over into the next 2 leave years. This measure will help alleviate any large amounts of accrued holidays being used straight after furlough leave.

LEGAL OBLIGATIONS

As an employer you have a number of legal obligations to adhere to during a process of lay off, reduced working, redundancy and or terminations. In all scenarios however what is important is the ‘reasonableness’ to a situation.

HOW DO WE PLACE EMPLOYEES ON FURLOUGH?

Notwithstanding the fact that furlough is an entirely new concept within UK employment legislation, your starting point will be employee contracts of employment; IF a clause exists within the contract that permits a period of short term lay off or short term reduced working then it is assumed that you have the ability to invoke your right in this regard without the need to seek the employee’s permission or follow information and consultation processes and you can communicate your actions via appropriately written correspondence. (Possibly arguable in view of its introduction but this is where any action taken must be ‘reasonable’ in the circumstances)

IF however you have no such clause (or no contract at all) then you need to the seek written agreement of your employees, again this would be done via appropriately written correspondence.

WHAT HAPPENS IF WE HAVE MADE OFFERS OF EMPLOYMENT?

If you have had an offer accepted by the employee you then you may give notice to terminate the contract, or alternatively, you can agree to defer the start date with the employee. If an offer has not been accepted, it is not legally binding and you can write to withdraw the offer.

WHAT HAPPENS IF WE HAVE NEW STARTS AFTER 28th FEBRUARY 2020?

These employees will not have access to the scheme and therefore you may agree with the employee to place them on unpaid leave, or you can terminate their employment with notice or you can place them on a period of lay off if the contract allows. The “Lay off” in this example would permit a guarantee payment of £29 per day up to a maximum of 5 day’s payment and then no pay is provided.

Who can be furloughed?

Full-time and part time employees, employees on agency contracts (who are not working) and employees on flexible or zero hours contracts.

Do employers have to top up the 80% to 100%?

No. The employer must pay the grant it receives under the scheme (less normal deductions) but they do not have to top it up, although employers may want to.
   
What if the 80% brings the employee down below the NMW?
As they will not be carrying out work for the employer then this is not a problem. However, if the employee is carrying out on-line training for the employer whilst furloughed then they must receive minimum wage.

Can I furlough those employees who are self-isolating or are caring for someone who is vulnerable?

The guidance makes clear that those who are shielding in line with guidance from Public Health England can be furloughed. Those who are self-isolating or on sick leave get SSP but can be furloughed after that.

How do we select those to be furloughed?

If you have a group of people who all do the same job and only need half of them, then you will have to apply fair and objective selection criteria in deciding who stays and who is ‘furloughed’. This would have to be carried out quickly and probably based on what skills you will need in the short term. So for instance if you need some of the sales force you are going to select your best sellers to stay as they have the best chance of making sales. Bear in mind that decisions must not be discriminatory.
 
RETURN TO WORK

Once the lockdown is lifted and people can return to a level of normality employees must be informed in writing that they are being removed from furlough and are required to return to work.

It may be that some employers will still need to progress with redundancies or permanent changes to terms and conditions of employment, such scenarios will require due process and adherence to legal obligations including the submission of HR1 forms if appropriate as outlined above.

Useful Links: 

Example Furlough Letter

Government Website – Claiming Wage Costs

ACAS –  Guidance for Employers during Pandemic

NHS on COVID-19 

Government advice for employers, employees and businesses

Online Isolation Notes

Notes on Staying at home and Away from Others

Government Support for Businesses

Get on Online Isolation Note

ICO Guidance

ACAS Working from home guidance

 

@BGEastDunbarton