Job Retention Scheme – Furloughed workers

Furloughed workers are those whose employers cannot cover staff costs due to coronavirus, and as such they have been asked to stop working, but have not been made redundant.

80% relief on payment of employees who are laid off

Where employers lay staff off, they will be able to claim a grant of up to 80% of an employee’s pay up to a limit of £2,500 per month. The claim can be backdated to 1 March if you have already laid staff off.

To use the scheme you will need to designate affected employees as ‘furloughed workers,’ and notify your employees of this change. Although the language is new, that is the same as laying employees off. You can do that if you have the right to do so in your contract or, if not, with the agreement of the employees.

In due course you will need to submit information to HMRC about the employees that have been furloughed and their earnings through a new online portal.

The scheme is due to run until 31 May 2020 although this may be extended.

There is no requirement for employers to pay the additional 20% to ensure that employees receive full pay.

There will be a time lag between making these payments and reclaiming the money from the government. If that is a problem for you, you could tell employees that you will make the payments once you get the cash from the government.

Which employees are eligible?

Furlough leave is available to all employees on a contract, including;

• full-time employees
• part-time employees
• employees on agency contracts
• employees on flexible or zero hour contracts

How does it work?

• The employer must designate affected employees as furloughed workers.
• They should notify the employee that they have been marked as Furlough. Agreement from the employee may be required.
• HMRC must be notified of the employee designated as furloughed workers as well as details of their earnings. This is done through an online portal (not currently set up).
• HMRC will reimburse 80% of furloughed workers wage costs, based on the February earnings of salaried workers, up to a cap of £2,500 per month.
• Wages for those on variable hours, can be calculated based on 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, employers can claim for an average of their monthly earnings since they started work.

• Employees remain employed, their continuity of service is not impacted.
• Employer may choose to top-up the other 20% of salary. If they don’t top-up the 20% it will be a deduction in wages.
• Wages paid through the Scheme are subject to the usual income tax and other deductions.

What are the employment issues?

Changing the status of employees to a furloughed worker remains subject to existing employment law. Generally, where an employee’s contract contains a layoff or short term clause employers should be able to place employees on furlough leave. Where there is no such clause, it is best advised to get agreement from the employee.

Additionally, a 20% reduction in salary will be a change in terms and conditions of employment. Where employers are not topping up the government payment, they should also seek agreement from the employee.

Given the current situation and the alternatives for those employees should they not agree, one can expect that most employees will agree. That said, prudent employers will seek to get their employees agreement as part of their furlough leave process.

Please see a sample letter to notify your employee that they have been designated as a furlough worker here

A word of caution

We are receiving a lot of requests to furlough employees back to 1^st of March.  Whilst this is possible, it is only possible for employers who laid off their employees already on the 1^st March.  It is not possible to furlough workers who are working even 1 hour a week, and so if the decision was made on the 20^th March (for example) to furlough workers who had been at work up until that date, the furloughing can only apply from that day.

Single Director companies are also included in this, but they have to be doing NO work. Not even accounts or bookkeeping or anything that they would normally be doing.  If they are doing any admin work to keep the business alive, then (as of the guidance as it stands right this second – it changes for too frequently to give any concrete, absolute guidance) they cannot furlough themselves.

Further information and clarification is expected from Government shortly, for now, unless your contracts of employment have what is called ‘A Lay-off Clause’ which allows you to send employees home without pay, or ‘such action is a regular practice’, you need to proceed cautiously.

The Government has been clear, this announcement does not create a legal right to place employees on furlough leave. The employee’s status will continue to be subject to employment law and existing contracts of employment.

When can I access it?

HMRC are working urgently to set up a system for reimbursement. We expect the first grants to be paid within weeks, and we’re aiming to get it done before the end of April. If your business needs short term cash flow support, you may be eligible for a Coronavirus Business Interruption Loan.

Please remember that this information is not finial and may change. Information up to date as at 30 March 2020