What does furlough mean?
This is where employees are sent home, normally because there is a lack of work, but they still technically remain employed.
Why do I keep hearing about furlough?
The Government has now introduced financial support known as the Coronavirus Job Retention Scheme (Scheme) for furloughed workers in light of Covid-19 meaning they will pay 80% of an employee’s wages, up to the current cap of £2,500 per month. In addition, employers can claim for the associated Employer National Insurance contributions as well as the minimum automatic enrolment pension contributions that will be paid on the wage.
The Scheme has come as a big relief for many employers, but, there are some important eligibility requirements, set out below.
- The Scheme is available to employers who use PAYE payroll from 28 February 2020 so this can include businesses, charities and even public authorities (subject to certain provisions).
- It applies to employees (both full and part-time) as well as workers, people doing casual work and also those on zero-hours contracts.
- The Scheme can also be used if an employee has more than one job. In this case, both jobs are treated individually meaning an employee can be furloughed for one or both jobs. If an employee is furloughed for both jobs, 80% of their salary (up to the £2,500 cap) for each job can be claimed.
- Employees have to be furloughed for at least 3 weeks.
- An employer needs to designate (pick and tell) the relevant employees and they must be kept on the payroll.
- The designated employees cannot do any work for the business whilst furloughed.
So, what’s the catch?
Whilst the Scheme is very beneficial and will benefit many businesses, there are some limitations.
- If an employee is furloughed, they cannot do any work for their employer. This can be difficult because some businesses may have a downturn in work, but not to the point where there is no work to do whatsoever. For the Scheme to apply, the employee will need to be furloughed for at least 3 weeks, so a business cannot ‘see how to goes’ on a week by week basis.
- The Scheme only pays workers 80% and it is capped at £2,500. An employer can choose to pay the difference, but they do not have to and will not be able to recover the difference through the Scheme if they chose to do so.
- The Scheme only applies to staff on the payroll no later than 28 February 2020. Therefore, if a business had any new starters after this date then they will not be eligible for the Scheme. However, one saving grace is that if an employer has already made redundancies on or after 28 February 2020 due to coronavirus, those employees can be re-hired and furloughed.
- Perhaps the biggest issue with the new Scheme is that employers cannot actually access the grant yet as this has to be done via an online portal, which is not currently active (the website estimates it will be active by the end of April). This means employers need to pay the 80% salary for now, but they can backdate their claim to 01 March 2020 once the website is functioning. This still leaves the issue of funding the salary in the meantime, although the Government are trying to assist with other schemes such as the ‘Coronavirus Business Interruption Loan’.
- Employers will need to actually implement the Scheme by selecting employees, but in absence of an express right in the employment contract, businesses will need an employee’s permission to do so or risk a claim. It is hoped in the circumstances most employees will agree to the arrangement and if they do, this should be recorded in writing. If employees do not agree and there is nothing in their contracts, employers could seek to amend the contract terms, but if there are more than 20 employees that will be affected, employers will need to collectively consult by appointing staff representatives.
- What happens to employees on sick leave?
These employees will still receive Statutory Sick whilst they are on sick leave. After the sick leave has ended, they can be furloughed.
- What about maternity leave?
If the employee is eligible for Statutory Maternity Pay or Maternity Allowance then the normal rules will apply. If an employer offers any enhanced (earnings related) contractual pay to women who are on Maternity Leave, this is counted as a wage costs and can actually be claimed back through the Scheme.
These same principles also apply to employees who qualify for contractual adoption, paternity or shared parental pay.
It remains to be seen how the Government’s new online reclaim portal will work and how quickly they can get much needed funds to businesses. In the meantime, businesses will need to find ways to support their cash flow until they can reclaim the salary through the new Scheme, but only time will tell how many businesses survive this turbulent period.
Please do not hesitate to contact us on 01925 230000 or via email at email@example.com should you have any questions regarding the above or if you need any advice from our expert solicitors who will do their upmost to assist your business during this difficult time.