Watch our video explaining more about the Furlough Leave scheme.
What Is the Current Position?
The Government has put forward measures to help businesses ride out the economic crisis created by Covid-19. The Coronavirus Job Retention Scheme is an important part of the Government’s plan to support employers whose operations have been severely affected by coronavirus.
On the 12 June 2020, the government and HMRC released further information on the Coronavirus Job Retention Scheme. This guidance note covers some of the practicality around how it will work in practice.
The purpose of the scheme is to provide payments for employers in respect of employment costs incurred “in respect of furloughed employees arising from the health, social, economic emergency in the UK resulting from the coronavirus and coronavirus disease”.
The overall objective is to keep people at home while enabling employers to retain staff who will be needed when they begin to rebuild their businesses in the future.
Who Is Eligible for the Scheme?
All UK businesses are eligible.
Furloughed employees must have been on your PAYE payroll on 19 March 2020, and can be on any type of contract, including:
- full-time employees
- part-time employees
- employees on agency contracts
- employees/workers on flexible or zero-hour contracts
- agency workers
What We Know about ‘Furlough Leave’:
- Employees cannot work whilst on furlough and to be eligible under the scheme must be on furlough for at least 21 calendar days or more. An employer is permitted to rotate furlough leave amongst employees, provided each employee is off for a period of at least 21 calendar days. An employee cannot work for a person or employer connected to the employer or otherwise work indirectly for the employer.
- However from 1 July 2020 flexible furlough will be a new introduction to the scheme. In short, an employer will be able to bring a furloughed employee back to work on any amount of hours or shift pattern and still claim under the scheme for any hours not worked. This only applies to anyone who has already been furloughed. If someone has not been on furlough already they cannot be put onto flexible furlough. A flexible furlough arrangement will need to be agreed between the employer and employee. Also, the 3 week minimum period for furlough no longer applies under the flexible furlough scheme. However, claims under the scheme will need to be submitted in no less than one week blocks.
- The reason they must be on furlough must be given by reason of circumstances arising as a result of Coronavirus or the Coronavirus disease. This is quite ambiguous but the guidance to date would suggest the main individuals covered under the scheme are those who would have been laid off or made redundant. However, this statement suggests an employer does have the choice in other situations such as where an employee cannot attend work due to reasons relating to the virus.
- Employees who are shielding in line with public health guidance can be furloughed.
- Employees on sick leave or self-isolating should get Statutory Sick Pay but can alternatively be put on furlough should business needs require.
- The scheme also covers employees who were made redundant or have left since 28 February 2020, if they are rehired by their employer and placed on furlough, even if they are not re-employed until after 19 March 2020.
- Apprentices can be furloughed and continue with their training. However, they must be paid at least the Apprentice NMW for any training. This means the employer must cover the shortfall between what they can claim through the Scheme and NMW.
- Employees with caring responsibilities who are unable to work due to Covid-19 can be Therefore, this will include employees on dependant’s leave due to the closure of schools.
What You Can Claim Back from the Scheme
- Employers can use a portal to claim for 80% of furloughed employees’ (employees on a leave of absence) usual monthly wage costs, up to £2,500 a month, plus the associated Employer National Insurance contributions and minimum automatic enrolment employer pension contributions on that wage. Employers can use this scheme anytime during this period.
- The current scheme will remain the same until 31 July 2020.
- From 1 August 2020, the government will still pay 80% of wages up to a cap of £2,500 but employers will be required to pay employer NICs and pension contributions.
- In September, the government will pay 70% of wages up to a cap of £2,187.50 for the hours the employee does not work. Employers will pay employer NICs and pension contributions and 10% of wages to make up 80% total up to a cap of £2,500.
- In October, the government will pay 60% of wages up to a cap of £1,875 for the hours the employee does not work. Employers will pay employer NICs and pension contributions and 20% of wages to make up 80% total up to a cap of £2,500.
- Currently the scheme is still planned to expire at the end of October.
- Employers can claim for wages, past overtime, fees and contractual commission payments (from past sales). However, discretionary bonuses including tips, commission and non-cash payments/benefits should be excluded.
- The scheme pays a grant (not a loan) to the employer.
- If an employee has more than one employer they can be furloughed for each job. Each job is separate, and the cap applies to each employer individually.
- Furlough is from 1 March 2020, so is to be backdated. However, an employer will only be eligible to claim the grant once they have agreed the furlough with their staff and staff have stopped working for the employer.
- An employer can top up the 80% to 100% but does not have to subject to anything in the contract specifying otherwise or agreed.
- The 80% that can be claimed back under the scheme relates to an employee’s wages only. Therefore, an employer could make ‘furlough’ subject to other conditions such as a reduction or removal of benefits. Examples include contractual holiday entitlement (over and above statutory entitlement), car allowance, bonuses etc.). It is important to make this clear when requesting an employee agree to be furloughed.
- Employers can claim for any enhanced earnings for maternity leave, paternity leave, adoption leave and shared parental leave (over and above statutory payments) under the scheme.
- Confirmation of any furlough leave should be in writing and the records kept for a minimum period of 5 years.
Frequently Asked Questions
- How do you calculate a week’s pay if people don’t work regular hours e.g. irregular or casual hours?
For employees whose pay varies, the employer can claim for the higher of (i) the same month’s earning from the previous year (eg earnings from March 2019); or (ii) average monthly earnings in the 2019-20 tax year
- What about rotating staff on weekly patterns of furlough?
From 1 July 2020 this would be allowed under the flexible furlough scheme – further information about this is above.
How to Apply for the Scheme
Submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.
Employers will need to calculate the amount they are claiming. HMRC will retain the right to retrospectively audit.
From July, employees no longer need to be furloughed for a minimum period of 3 continuous weeks – however Employers should remember that they can only submit claims in blocks of one week.
Placing an employee on “furlough” leave will need to be done in accordance with their contract of employment and UK employment law. It is also something for the employer to decide and not the employee to demand although employers should be mindful unreasonable decisions could lead to claims such as constructive dismissal.
When employers are making decisions in relation to the process, including deciding who to offer furlough to, equality and discrimination laws will apply in the usual way. Therefore, employers should avoid picking individuals purely based on protected characteristics like age or health conditions which could amount to disabilities.
The scheme specifically states that “changing the status of employees remains subject to existing employment law and, depending on the employment contract, may be subject to negotiation.” It is extremely unusual for an employer to have a contractual right to put an employee onto this scheme, therefore in the vast majority of cases, it will need to be agreed with the employee.
In most circumstances the employee is likely to agree to be placed on the scheme. If the employee does not then the employer may be left to consider other options such as ‘lay-off’ or even redundancy.
The scheme is meant to preserve employment and support businesses and employees alike. The scheme is beginning to look increasing more complex as time passes and further information will no doubt be released over the coming days and weeks. It is important to be clear on your reasons for ‘furlough’ and eligibility under the scheme. Employers should discuss furlough with their employees to get their agreement and failing this seek specialist advice on their available options.
Last updated: 15th June 2020