‘Furloughing’ Explained…The Impact of Coronavirus on UK Employment Law

Published: 01/04/2020 | News

In light of the Coronavirus Pandemic, and specifically in relation to the current lock-down situation, the Government has launched a Coronavirus Job Retention Scheme. Tom Bourne-Arton of Farrar’s Building reviews the temporary scheme which is open to all UK employers.

The intention is that employers who would otherwise have had to make redundancies, or consider other payroll decreases, can instead furlough some or all of their employees for a period of time.

Use of the scheme will hopefully mean that for employers impacted by the current situation (e.g. because they are not able to operate during the current Coronavirus induced lock-down, such as pubs and gyms) can keep their employees without paying them. Instead the Government will make payments to those employees whilst they are furloughed. Once the lock-down is lifted those employees will be ready to return to work without the employer having to go through any recruitment process. The potential costs savings to businesses by using the scheme is significant.

If an employer has already made redundancies, but with hindsight would have instead furloughed their employees, provided those redundancies were made on or after 28th February 2020, it is not too late to rehire those employees and then furlough them. Obviously this will have to be done with the employee’s consent.

In order to furlough your employees changes to their employment contracts will need to be agreed. This cannot be done unilaterally. It may be that a collective consultation process will need to be undertaken if sufficient numbers of staff are affected. It is to be hoped that most employees will chose to be furloughed than made redundant but that is not a given.

Payments from the scheme will be made on completion of an application online.  The online service is not yet up and running. The Government hope that it will be ready to be used at the end of April 2020. This does not mean that employers cannot furlough employees now. It just means the applications for payments cannot be processed before the end of April 2020. What this delay does mean, however, is that employers need to be doubly sure that they comply with the scheme and satisfy the requirements as they will not be told they do not by the Government for at least a month.

The scheme was, and is, available to employers from 1st March 2020 and it will be available for at least three months.

There are a number of limitations to the scheme, which include the following:

  • The government payments are up to 80% of employees usual gross monthly wage, but only up to a max of £2,500 per month, plus the composite NI and automatic enrolment pension contributions. If an employee’s wage varies then they can claim the higher of the same month’s earnings from the previous year (e.g. the May 2020 payment can match the May 2019 payment) or the average monthly earnings from the 2019/2020 tax year. If the employee has worked for less than a year then an average of the monthly earnings from their start date should be used. If the employee started in February 2020 (but before 28th February 2020) then a pro rata average should be used.
  • When calculating the “usual monthly pay” fees, commission and bonuses are not to be included.
  • NI and minimum automatic enrolment employer pension contributions will still have to be paid by the employer. As above, those sums can be claimed from the scheme.
  • The entire government payment has to be paid to the employee (no deductions can be made by the employer).
  • It is only available to UK employers that had created a PAYE payroll scheme by 28th February 2020.
  • The Employer must have a bank account (for the payment to be paid into).
  • The scheme is for employees who are not working. If employees are working part-time or on reduced hours then they cannot be furloughed and are not eligible for payments through the scheme.
  • The minimum period of furlough is 3 weeks per employee.
  • The scheme is not available to employees employed after 28th February 2020.
  • The scheme will not run indefinitely and when it ends employees will return to previous contractual terms.

Other considerations in relation to the scheme include:

  • If the employer is a public funded entity then the expectation will be that they continue  to pay their staff without furloughing them. Obviously many public servants are essential workers.
  • There is no issue with the type of contract employees were on. The scheme is therefore available to:
    • Full time employees
    • Part-time employees
    • Employees on agency contracts
    • Employees on flexible or zero-hour contracts.
  • If an employee is on sick leave or self-isolating they should be receiving Statutory Sick pay. After the sick leave or isolation is over they can then be furloughed (provided they are otherwise eligible).
  • If someone works for more than one employer – such as many employees on zero hour contracts – they can be furloughed by each employer. If this occurs then the cap applies to each employer individually. Therefore someone who is very hard working and has three different employers and receives more than £2,500 a month from each will be entitled to £7,500 from the government when she/he is furloughed by all employers.
  • A furloughed employee can undertake volunteer work and/or training. Two exceptions are:
    • That such volunteer work or training cannot be revenue generating for the employer; and
    • If the training is required as part of their employment then the employer needs to pay them at least the national minimum wage for the time spent training, even if this is more than 80% of their wage that will be subsidised.
  • If an employer wants to furlough employees they should inform their employees in writing and keep a record of that communication.
  • Individuals entitled to Statutory Maternity Pay, Maternity Allowance, contractual adoption, paternity or shared parental pay will still be entitled to the same payments. If the employer offers an enhanced, earnings related, contractual pay to women on Maternity leave then they can claim through the scheme.
  • An employer can choose to top up the payments made by the Government, but the NI and pension contributions associated with such payments cannot be claimed from the scheme. Therefore in these situations the employer needs to work out the NI and pension contributions payable on the monies received from the scheme, and then claim them through the scheme, the additional NI and pension contributions will then be payable by the employer.

Tom Bourne-Arton is a member of the Farrar’s Building Employment Team.  Please direct any instructions or queries to the Clerking Team.

Author: Tom Bourne-Arton Farrars (chambers@farrarsbuilding.co.uk)